Johnson & Johnson: Small Deals To Continue in 2016 | Summary and Q&A

TL;DR

Johnson & Johnson is on the lookout for small companies to acquire and enhance their research and development efforts, leveraging their strong cash position.

Key Insights

• 👨‍🔬 Johnson & Johnson's CEO hinted at their continued interest in acquiring small companies for research and development purposes.
• 🥶 The company has a substantial cash position and significant annual free cash flow, giving them the financial capability to execute their acquisition strategy.
• 🔸 Their past acquisitions have been in the $2B or less range, indicating a preference for smaller targets.
• 😑 Johnson & Johnson's CEO expressed satisfaction with the current allocation of free cash flow towards internal R&D and external collaborations.
• 🤝 Large acquisitions, like the Synthes deal, have not yielded desired results, leading to a shift towards smaller deals.
• 🙈 Smaller deals are seen as more manageable and potentially more profitable in the long run.
• 👶 Johnson & Johnson's overall goal is to bring new drugs to the market and improve healthcare.

Transcript

Kristine Harjes: Let's talk a little bit about Johnson & Johnson. I found their call really interesting. Todd Campbell: Yeah, that was a really interesting JP Morgan presentation, too. One of the reasons is because J&J took the typical script of, "Here's my PowerPoint presentation, I'm going to put it up and walk you through it," and kind of threw ... Read More

Questions & Answers

Q: What is Johnson & Johnson's approach to acquisitions?

Johnson & Johnson focuses on smaller companies, preferably valued at $2B or less, to tuck into their research and development efforts, as demonstrated by their past acquisitions.

Q: How does Johnson & Johnson allocate their free cash flow?

Approximately 30% of their free cash flow goes towards research and development and mergers and acquisitions, with the split being around 55% for internal R&D and 45% for external collaborations and acquisitions.

Q: Has Johnson & Johnson had success with large acquisitions in the past?

Large acquisitions, such as the $21B Synthes deal, have not been as successful for Johnson & Johnson. They now appear to be favoring smaller deals due to their complexity and the potential for higher profitability with smaller targets.

Q: What is Johnson & Johnson's motivation for pursuing smaller deals?

Johnson & Johnson recognizes the challenges and complexities associated with large deals. They believe that leveraging their knowledge and experience in smaller deals can lead to better long-term profitability.

Summary & Key Takeaways

• Johnson & Johnson took a different approach during a presentation, opting for a fireside chat to discuss healthcare and their efforts to improve it.

• The CEO hinted at their intention to acquire small companies to expand their research and development and bring new drugs to the market.

• With $37B in cash and short-term investments and $11B in annual free cash flow, Johnson & Johnson has the financial means to execute their acquisition strategy.