No, no, no, no, no...

Now wait a doggone minute.

This wasn’t supposed to happen. Hologic merging with Cytyc? No, no, no. Hologic and Cytyc were two of the more reliable mid-tier medical device players, acquiring the venture-backed companies that the big guys no longer had the bandwidth nor time to buy.

See, Hologic and Cytyc operated deep underwater where the storms of consolidation that occupied J&J, Boston Scientific, the former Guidant et al couldn’t reach them. They were supposed to grow steadily by buying smaller companies along the way (along with Kyphon, Inverness and the like.) For a detailed look on this strategy check out colleague Mary Stuart’s extensive piece on Hologic from earlier this year. Also keep an eye out for Hologic coverage in the upcoming issue of Medtech Insight.

But this merger certainly changes the game. Rather than build their women’s health business acquisition-by-acquisition, the two companies—which target two different areas of the market—opted to double in size with one big deal. Check out the presentation by company management (unfortunately we couldn’t access the web cast, but please try.)

This is truly a merger of equals with Hologic and Cytyc bringing roughly half the revenue to what will be a $1.4 billion company. And how do things look next year? The company is advising analysts to expect more than $1.7b in revenue and expects to grow that by 20% each year. The combined company's gross margin (100 * (Revenue - Cost of Goods Sold) / Revenue) would be 65%. Individually, Cytyc's gross margin was 75% while the capital-intensive Hologic boasted a 45%. The company anticipates saving up to $30 million by maximizing efficiences and generating $75 million in new revenues through cross-selling, a broader geographic reach and identifying new markets.

So what’s this mean for future acquisitions? We think this is a positive. Clearly, the new company—called Hologic—will be in a position to do a nice bit of acquiring. Plus, the two independent companies weren’t likely to bid on the same companies anyway. More than two-thirds of Hologic's revenue came from digital mammography, a radiology market, while Cytyc's Pap test and Novasure tissue ablation products targeted to Ob/Gyns accounted for 86% of its revenue. In fact, a few months ago when Mary asked Hologic COO and President Rob Cascella about the company’ strategy for future acquisitions he conceded that perhaps the company wasn’t likely to stray from its imaging roots. “We don’t really have skills that transfer well into a new market.”

Well, they do now. Or at least they will if and when the deal closes in the third quarter.

Here's hoping they'll still be hungry.