SKANEATELES FALLS — The board of directors of Welch Allyn Inc. decided to sell the Skaneateles Falls–based manufacturer of medical-diagnostic equipment to Hill-Rom Holdings Inc. (NYSE: HRC) to get more “scale and relevance” in a consolidating health-care industry.

 

That’s according to Eric Allyn, co-chairman of the Welch Allyn board of directors and a Welch Allyn founding family member.

 

Allyn is the great grandson of company co-founder William Noah Allyn.

 

He spoke with CNYBJ on June 18, the day after Hill-Rom announced its planned acquisition of Welch Allyn for about $2.05 billion in cash and stock, which is expected to close in September. Hill-Rom, a medical-technology company, has corporate offices in Chicago, Illinois, and Batesville, Indiana, according to its website.

 

Welch Allyn’s board of directors started the process “a number of months ago,” says Allyn.

 

“Those discussions became more and more frank over the last few years as the business pressures became … started to limit our growth,” he adds.

 

John Greisch will be the CEO of the combined company. Hill-Rom expects that “certain members of Welch Allyn’s senior management will join the company.”

 

Welch Allyn CEO Steve Meyer will have an “interim role,” and the firm currently has executives “who will no longer be with us when this transition is done,” says Allyn.

 

It’s a “small number” of executives, and they “know who they are,” he adds.

 

CNYBJ also asked if the campus in Skaneateles Falls would retain the Welch Allyn name.

 

“It will stay Welch Allyn,” says Allyn. “Our brand is absolutely going to survive this.” 

 

He noted that Hill-Rom spent “a lot of money” for the Welch Allyn brand. 

 

“This by far is a better path for our Skaneateles facility than a go-it-alone path,” says Allyn.

 

Changing industry 

Allyn remembers the days when individual doctor’s offices were their own businesses and “made up their own mind” to buy medical products. 

 

“We kind of liked that,” he says.

 

Over the last 10 to 15 years, doctor’s office groups have merged with one another and formed multi-specialty clinics. The process has included hospitals acquiring the clinics and perhaps other hospitals, and in some cases, insurance companies then bought the hospital.

 

“And so today’s health-care system is a hugely consolidated business,” says Allyn.

 

He then went on to explain what the consolidation means for Welch Allyn.

 

In days gone by, an individual doctor bought products “based on quality.”

 

Nowadays, the doctor isn’t making the purchasing decision. Rather, a purchasing agent in an integrated-delivery network (IDN) makes that choice.

 

The U.S. has about 50 IDNs, says Allyn, which he describes as “massive organizations.” He noted that Trinity Health, which St. Joseph’s Hospital Health Center of 

Syracuse is joining, is an IDN.

 

Allyn contends that a sourcing manager is making the purchasing decision as the individual seeks the “lowest possible price” when seeking to purchase not one device, but 200 such products.

 

“This has really hurt the pricing of our products,” says Allyn.

 

Besides the pricing aspect, Allyn contends the industry’s consolidation has also “hurt” Welch Allyn’s business.

 

Doctors and hospitals know Welch Allyn, but the IDNs don’t, he says. 

 

“We don’t have relevance because we’re not big enough relative to our customers,” Allyn contends.

 

At the same time, Hill-Rom addresses both concerns, Allyn says. 

 

The firm answers the relevance question because every IDN knows Hill-Rom. The company can help Welch Allyn “when it comes to pricing because we can bundle.” 

 

Bundling involves selling several products or services in a package deal.

 

He says Welch Allyn’s biggest competitors are Fairfield, Connecticut–based General Electric Corp. (NYSE: GE); Amsterdam, The Netherlands–based Philips (NYSE: PHG); and Berlin, Germany–based Siemens AG, which “have a huge bundle” and can protect their prices. 

 

“Together, Welch Allyn and Hill-Rom will be able to do just that,” he adds.

 

Hill-Rom also provides Welch Allyn the “global reach” it has been hoping to secure, says Allyn.

 

The company has tried it, but Allyn noted “the truth is it’s tough.”

 

Hill-Rom has a “huge” international business. The combined company’s international business will be over a billion dollars

 

As a point of comparison, Allyn says the local company has one employee in France, while Hill-Rom generates $100 million in sales in France annually.

 

He mentioned similar situations in Germany and India. Welch Allyn has two sales people and a service employee in India, which has a population and hospital count that is “quite a bit bigger than America’s.”

 

Hill-Rom has a presence in India, China, and Russia, enabling its sales representatives to offer more than the company’s beds and operating-room equipment.

 

“They’re going to be able to sell our blood-pressure gauges … odoscopes, thermometers, and monitors,” says Allyn.

 

Hill-Rom expects the combined company will generate $2.6 billion in revenue and produce more than $500 million in adjusted EBITDA.

 

EBITDA is short for earnings before interest, taxes, depreciation, and amortization.  

 

Local impact

The 75 Welch Allyn shareholders will own 13 percent of the combined company and “will be the biggest [single shareholder group] in Hill-Rom by far,” says Allyn.

 

When asked if any members of the Welch Allyn board become part of the Hill-Rom board of directors, Allyn indicated it has “not been determined.”

 

“What’s been important has been our employees and our brand and having the Welch Allyn name survive,” says Allyn.

 

When asked about the Welch Allyn employee count, Allyn says that Hill-Rom has a “tremendous commitment” to the Skaneateles Falls and Tijuana, Mexico facilities of Welch Allyn.

 

“They want our efficiency. They want the people of Skaneateles and the people of Tijuana. They love what we do here,” says Allyn.

 

He also noted Hill-Rom hasn’t made decisions on its existing facilities “and where those products will go.” 

 

Allyn also shared what Hill-Rom CEO John Griesch told Welch Allyn employees during a visit on June 17. 

 

“You folks are very efficient. You build products really well, and if you keep doing that well, we could bring a lot more products here,” Allyn says, paraphrasing Greisch’s comments. 

 

Allyn also noted that he “can’t talk about individual jobs” because some people “might not be here next year in an individual level.”

 

Before being acquired itself, Welch Allyn had made several acquisitions in recent months, including buying most of the assets of White Plains, New York–based 

Scale Tronix in May; Knoxville, Tennessee–based Hubble Telemedical in January; and HealthInterlink of Omaha, Nebraska in December.

 

CNYBJ asked if the transactions played any role in preparing Welch Allyn for the Hill-Rom acquisition.

 

Allyn says they are related, noting the firm “did that to try to scale up ourselves.”

 

Welch Allyn is marking its 100th year in business in 2015, and CNYBJ asked if the acquisition announcement was planned to coincide with the anniversary or not.

 

“It just played out that way,” says Allyn.        

 

Contact Reinhardt at ereinhardt@cnybj.com