General Electric (GE) Vice Chairman John Krenicki recently said the company was revving up for more acquisitions, and today it announced plans to buy Clarient (CLRT), a maker of cancer diagnostic solutions, for $587 million.
GE has structured the deal as a tender offer and has already received approval from 47% of the shareholders. In today's trading, Clarient shares are up 33% to $4.98.
This is a sign that Corporate America is going to do something with its hoard of cash. Also, acquisitions are critical for finding revenue growth -- whether in the U.S. or in emerging markets.
A Leader in Cancer Diagnostics
While Clarient got its start back in 1993, the company actually transformed itself in 2005. And it was a good move. The company realized that the completion of the genome project would be extremely valuable in creating advanced oncology testing systems. So Clarient invested money in developing a lab to pursue this opportunity. The company also made some key hires.
As a result, Clarient is now one of the leaders in the fast-growing space of molecular diagnostics. The company's tests provide granular details of patients and can provide optimal treatments. Clarient can analyze breast, prostate, lung, colon and blood-based cancers. What's more, pathologists can view the testing results from a internet portal, called PATHSITE.
And yes, Clarient has been growing at a rapid clip. In the latest quarter, revenues increased by 21% to $28.7 million. The total customer base -- of pathology and oncology practices -- is roughly 1,300. And, the retention rate is an impressive 98%.
Clarient has been making strides with its operating cash flows, which came to $2.5 million in Q2. There was improvement in collections and management of bad debts, which are often challenges in the health care sector.
A Big Deal, Even for GE
The market opportunity for Clarient is enormous. The projection is that the global demand for cancer-profiling solutions will ramp from $15 billion in 2009 to $47 billion in 2015. Of course, aging populations will mean increases in cancer daignoses and the need for better treatments. While this is a grim prospect, advances like molecular diagnostics will be vitally important to fighting cancer.
Already, GE Healthcare has a strong footprint in medical diagnostic and information systems. All in all, the business has been growing and the addition of Clarient will certainly be a boost, given its strong pipeline of new products, especially tests for breast cancers.
In fact, GE thinks it can turn the molecular diagnostic business into more than $1 billion in revenues. Even for a company of its size, this is still a big deal.