Morningstar | Hill-Rom Starts 2019 on Track to Meet Full-Year Outlook
Hill-Rom is best known for its market-leading position as a developer and manufacturer of hospital beds for both high- and low-acuity settings. However, the company’s strategy pivoted away from its core bed business through significant acquisition activity after John Greisch took over the CEO role in 2010. Greisch closed over $3 billion in net transaction volume, including the $2 billion acquisition of Welch Allyn in 2015--the largest deal in the history of the company. Other significant deals include the $230 million purchase of Trumpf Medical, which has helped bolster the company’s surgical segment, and the $300 million deal for Mortara Instrument in early 2017, which should complement and expand the firm’s existing cardiac monitoring portfolio.The flurry of deals comes at a pivotal time, as Hill-Rom’s market position has been weakened through increasing buyer power driven by consolidation at the hospital level and through the increased importance of group purchasing organizations in the procurement process. This dynamic, along with hospitals facing chronic reimbursement headwinds from both public and private payers, has reduced the attractiveness of the company’s once enviable market-leading position. Greisch developed this M&A-focused strategy to diversify the company’s revenue sources and move into higher-value-added and higher-margin product lines. In addition to inorganic initiatives, the company is working to enhance its competitive position through increased R&D spending and reallocation of these resources toward more differentiated assets, such as the front-line care segment that now houses Welch Allyn and Hill-Rom’s respiratory portfolio. While we like the direction Greisch took Hill-Rom, the surprise announcement of his retirement adds some uncertainty to the firm's long-term prospects. The company brought in former Bard executive John Groetelaars as CEO in May. We think this is a strong hire for the company and don't anticipate the firm's overall strategy to change much over the coming years.Hill-Rom Holdings is a medical technology company. The company's reportable segments are: Patient Support Systems, which include a variety of frames and surfaces (such as medical surgical (med-surg) beds, intensive care unit beds, and bariatric patient beds), patient mobility solutions (such as lifts and other devices used to move patients), non-invasive therapeutic products and surfaces, and its information technologies and software solutions; Front Line Care, which includes its patient monitoring and diagnostics products and its respiratory health products; and Surgical Solutions, which include tables, lights, and pendants utilized within the surgical setting.
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