By Arno Schuetze and Georgina Prodhan
FRANKFURT (Reuters) - German industrial group Siemens <SIEGn.DE> will shortly start picking banks to organize a stock market listing of its healthcare business, which could be valued at up to 37 billion euros ($40 billion) including debt, three people close to the matter said.
Siemens will invite investment banks in early April to pitch for roles in the initial public offering (IPO), which could be the biggest since the flotation of German energy group Innogy <IGY.DE> in October, the people said.
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They said that Goldman Sachs <GS.N> had already been asked to look after some preparatory tasks for the IPO.
"Goldman Sachs will very likely emerge as one of the global coordinators of the Healthineers IPO," one of the sources said, adding that Healthineers would be listed in late 2017 provided equity markets were favorable.
Siemens and Goldman Sachs declined to comment.
Analysts estimate the business, Siemens's most profitable, has an enterprise value of around 36 to 37 billion euros.
Barclays Capital, which rates Siemens "equal weight", estimates that that represents around 15 times 2018 earnings before interest, tax and amortization (EBITA), compared with 10.4 times for the trains-to-turbines group as a whole.
"This is quite a high multiple factoring the strong cash generation and stable margin. However, top line growth has been muted and there are some headwinds ahead in both the U.S. and China, in our view," Barclays analyst James Stettler said.
Comparison with peers is difficult as they are divisions of conglomerates General Electric <GE.N>, Philips <PHG.AS> and Toshiba <6502.T>.
Potential investors in the IPO may compare Healthineers to Baxter <BAX.N>, Boston Scientific <BSX.N>, Ambu <AMBUb.CO> and Dentsply Sirona <XRAY.O> - which trade at 17 to 30 times their core earnings - when making their decisions on how much they are willing to pay.
The IPO of a minority stake in Healthineers would give Siemens a currency for organic or inorganic investment in the business, which is a market leader in diagnostic imaging but needs to adapt fast to boost its exposure to growth segments.
These include molecular diagnostics, which involves analyzing patients' genetic make-up to help doctors with diagnosis, prognosis and treatment options, as well as advanced therapies and bespoke hospital services.
This will not be cheap. U.S. medical technology group Danaher <DHR.N> in November bought fast-growing but loss-making Californian molecular diagnostics market leader Cepheid for $4 billion including debt, or just over six times sales, at a premium of 54 percent.
"This (flotation) is the best option and the logical next step to provide flexible access to the capital markets and further strengthen the Healthineers business in the future," Siemens Chief Executive Joe Kaeser told investors on a call in November.
Analysts say GenMark Diagnostics <GNMK.O> and Oxford Immunotec Global <OXFD.O> are future logical takeover targets in the sector.
Siemens is now developing a next-generation lab diagnostics system, named Atellica, designed to leapfrog competitors such as Roche <ROG.S> and Abbott <ABT.N>, but the move is expected to dilute profit margins for around two years.
Last month, Siemens announced a $300 million investment and 700 new jobs at its Walpole, Massachusetts laboratory diagnostics manufacturing facility over the next four years to manufacture assays for Atellica.
Analysts say Healthineers - which accounts for about 30 percent of divisional sales - has underperformed both its peers and expectations since Siemens created it in the last decade.
It posted sales of 13.5 billion euros in the fiscal year to end-September, an increase of 5 percent. It had an EBIT margin of 17.2 percent, an improvement on the previous year's 16.9 percent and the highest of any Siemens business.
It has about 46,000 employees worldwide.
(Editing by Maria Sheahan and Adrian Croft)