- Market volatility and big drops in stock prices will make acquisitions more opportunistic.
- Companies are also sitting on high levels of cash.
- Johnson & Johnson CFO Joseph Wolk told CNBC on Tuesday that it is bullish on M&A given the market environment and its recent debt reduction effort and move closer to a net cash position.
Mergers and acquisitions are on the table every year for Johnson & Johnson, but amid a stock market selloff and a strengthened balance sheet position, J&J may be even more aggressive in deal-making this year, according to its chief financial officer.
"We're starting to feel very bullish about the prospects as we see some volatility in the market," J&J CFO Joseph Wolk told CNBC's Meg Tirrell in an interview after the company's earnings on Tuesday morning.
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"We think there can be an opportunity for us in 2022 to lean in on the acquisitions front," Wolk said.
The biotech sector has sold off in recent months, and the J&J CFO said its M&A targets include companies in biotech, but it will also be looking for deals in the medical technology space.
The company invested a record $15 billion in R&D last year, eclipsing its 2020 record, and is moving closer to a net cash position as its balance sheet hits the lowest level of net debt in years, Wolk said — roughly $2 billion, which is a five-year low.
J&J has $32 billion in cash and marketable securities and $34 billion in obligations.
New J&J CEO Joaquin Duato raised the subject of more acquisitions during the company's earnings call on Tuesday, in particular, of smaller companies.
"We are constantly looking at M&A as a key source of growth for our business. Our position in cash today makes us be more aggressive in that area," Duato said on the call.
The company expects more than $3 billion from Covid vaccine sales in 2021, though that continues to be run on a non-profit basis.
In the short-term, there are headwinds in the overall business segments. Medical technology sales have slowed as the latest wave of Covid limits elective procedures and that will linger in the first month, at least, of 2022, according to Wolk. Staffing shortages at large hospital systems, where nurses are covering twice as many patients as normal, will need to be addressed for growth to resume a more typical pattern.
J&J's consumer health division was hit by supply constrains in raw materials, labor shortages among third party manufacturers and higher transportation costs, Wolk said. But as case counts go down, he expects the second half of the year to be stronger for the company and, as it has previously forecast, expects strong growth from its pharmaceuticals business through 2025.
The planned spinoff of the consumer health business will not "slow us down, if we find the right opportunity," Wolk said.
That effort is being led by an independent team, Wolk noted, with a plan to make executive appointments in the first half of the year; then by the middle of this year have a new company name and headquarters chosen; and then in the second half of the year provide more detailed financial plans surrounding costs and synergies.
—CNBC's Spencer Kimball contributed to this report.