Shock deal! Carlyle to snap up Baxter’s kidney care business for $3.8bn—Here’s why it matters

In a landmark move for the medtech industry, Carlyle Group (NASDAQ) has announced its decision to acquire Baxter International Inc.’s (NYSE) Kidney Care segment for a substantial $3.8 billion. This transaction will see the segment rebranded as Vantive and marks a significant shift in the global kidney care market. The acquisition, slated to close in late 2024 or early 2025, positions Carlyle and its partners to reshape the industry with new innovations and strategic growth.

Details of the Acquisition

Under the definitive agreement, Baxter will receive approximately $3.5 billion in cash, with net after-tax proceeds estimated at around $3 billion. The deal is part of Baxter’s broader strategic realignment announced in January 2023, aimed at enhancing operational performance and creating value for shareholders. This move follows Baxter’s review of various strategic options for the Kidney Care segment, which led to the conclusion that selling to Carlyle would provide the optimal value and strategic positioning for both companies.

Strategic and Financial Implications

The sale allows Baxter to streamline its operations and focus on its core business areas. The proceeds from the sale will be used to reduce Baxter’s debt, aligning with its stated capital allocation priorities. This strategic shift is expected to enable Baxter to invest more effectively in its remaining operations, enhancing its growth prospects.

Carlyle Group, a prominent private equity firm, has a strong track record in the medtech sector, with over $40 billion invested in medical technology and diagnostic companies. This acquisition is part of Carlyle’s strategy to expand its footprint in the healthcare sector and drive innovation through Vantive.

Role of Atmas Health

Carlyle’s acquisition is supported by Atmas Health, a consortium founded in September 2022 by industry veterans Kieran Gallahue, Jim Hinrichs, and Jim Prutow. Atmas Health’s involvement underscores a collaborative approach to driving growth and innovation in the healthcare sector. Kieran Gallahue, who will serve as Chairman of Vantive, brings extensive experience in healthcare management and will work closely with Chris Toth, who will transition from his role as Baxter’s executive vice president to become Vantive’s CEO.

Leadership and Vision for Vantive

Chris Toth’s appointment as CEO of Vantive is seen as a strategic move to drive the company’s mission of advancing kidney care and vital organ therapies. Vantive, a leader in global kidney care, offers a comprehensive range of products and services, including peritoneal dialysis, hemodialysis, and continuous renal replacement therapy (CRRT). The company, which has over 23,000 employees worldwide, generated $4.5 billion in revenue in 2023.

Toth is enthusiastic about the future of Vantive, emphasizing the opportunity to innovate and expand in the renal care sector. The acquisition is expected to provide Vantive with the resources needed to advance digital solutions and explore new areas in vital organ therapies.

Transaction Details and Advisory Support

The transaction is expected to finalize in late 2024 or early 2025, pending customary regulatory approvals and satisfaction of other closing conditions. Baxter has enlisted Perella Weinberg Partners LP and J.P. Morgan Securities LLC as financial advisors, with Sullivan & Cromwell LLP and Baker McKenzie providing legal counsel. Carlyle is advised by Barclays and Goldman Sachs & Co. LLC, with Kirkland & Ellis LLP serving as legal counsel.

Baxter’s Future Outlook

Following the sale, Baxter anticipates operational sales growth of 4% to 5% annually, with an adjusted operating margin of approximately 16.5% for 2025. The company aims to leverage the proceeds from the sale to focus on high-growth, high-return opportunities and reduce its debt. Baxter expects to reach its investment-grade target of below 3.0X debt-to-EBITDA by the end of 2025, with a focus on cost containment and strategic investments.

Industry experts view the acquisition as a pivotal moment for both Carlyle and Baxter. Robert Schmidt, Carlyle’s Global Co-Head of Healthcare, highlighted Carlyle’s commitment to leveraging its global investment platform to support Vantive’s growth. The transaction is anticipated to enhance Vantive’s capabilities and position it for future success in the kidney care market.

Kieran Gallahue, co-founder of Atmas Health and incoming Chairman of Vantive, expressed excitement about supporting Vantive’s growth and building on its legacy of innovation. The partnership is expected to drive significant advancements in kidney care and vital organ therapies.

The acquisition of Baxter’s Kidney Care segment by Carlyle Group represents a transformative development in the healthcare sector. With Vantive set to continue its legacy under new leadership, the transaction positions both Carlyle and Baxter for future success, driving innovation and growth in the global kidney care market.