Sivantos and Widex in $8 billion merger to create No.3 in hearing aids

COPENHAGEN/FRANKFURT (Reuters) – Hearing aid makers Widex and Sivantos are merging to create an industry number three that can invest more in digital devices and step up the challenge to market leaders Sonova and William Demant.

Germany’s Sivantos, formerly known as Siemens Audiology, and Denmark’s Widex said on Wednesday they had agreed to form a company worth more than 7 billion euros ($8.3 billion), including some 3 billion euros in debt.

Makers of hearing aids, whose customers are typically in their seventies and eighties, are benefiting from rising demand in aging societies, but some are facing challenges adapting to the digital age and the demands of more tech-savvy generations.

“Innovation is one of the biggest areas of growth, and this is accelerating because we have a new group of consumers that is coming with a completely different mindset,” Sivantos chief executive Ignacio Martinez told Reuters.

The merger will enable the enlarged company to invest more in research and development (R&D) in areas such as bluetooth and sensors, he said.

One of the technologies hearing aid makers are hoping to attract younger customers with is capturing healthcare data using sensors in the devices.

The ear is a good source for capturing data like heartbeats and blood pressure and the technology could be available within the next three years, according to Morgan Stanley research.

Funds of Swedish private equity firm EQT, including co-investors, will own a majority of the merged group. The Topholm and Westermann families, who currently own Widex, will retain large stakes and be the largest shareholder group. EQT bought Sivantos from Siemens in 2015 for more than 2 billion euros.

The combined group, whose name has not been decided, will have 1.6 billion euros in annual sales and employ more than 10,000 people worldwide, including 800 in R&D.

Bernstein analysts estimate the deal has an enterprise value (EV) – equity plus debt – of 20 times the combined firms’ earnings before interest, tax, depreciation and amortization (EBITDA) for 2017.

Denmark’s GN Sore Nord, currently one of the world’s four biggest hearing aid suppliers, is trading on an EV/EBITDA ratio of about 17 times 2017, with William Demant on 23 times and Sonova 22 times, they added.

Widex and Sivantos declined to comment on the valuation or to disclose the distribution of stakes. They called the deal a “merger of equals”, indicating no cash was involved.

LISTING POSSIBLE

The merger pushes back EQT’s plans for a stock market listing of Sivantos by a few years, as the focus will now be on integrating the companies and advancing their digital technology, a person close to the matter said.

“It is very possible that there will be an IPO, but the only thing we know is that we will continue to be a large shareholder,” Widex chairman Jan Topholm told Reuters.

Sonova has been criticised for missing an opportunity when GN introduced direct-streaming hearing aids for wireless devices in 2014, but last year closed that gap.

Sivantos and Widex have similar technologies.

The Bernstein analysts said increasing R&D spend may allow Sivantos and Widex to draw ahead of rivals, and the new entity might experiment with new approaches to the market, challenging the traditional model of selling through specialist outlets.

“With around a third of Demant and Sonova sales coming from owned retail, this would be bad news particularly for those players,” they said in a note to clients.

At 1235 GMT, Sonova shares were down 2.1 percent, while GN’s were down 0.6 percent and William Demant’s up 1 percent.

Sydbank analyst Morten Imsgard said Sonova, William Demant and the newly formed company would each have an around 25 percent market share, followed by GN Store with 16 percent and Starkey with 9 percent.

Financing in connection with the merger is being provided by J.P. Morgan, Goldman Sachs and Deutsche Bank.

Widex is being advised by J.P. Morgan, Kromann Reumert and Deloitte. EQT and Sivantos are being advised by Freshfields Bruckhaus Deringer, Plesner, PricewaterhouseCoopers and AON.