By OMAR FORD
Medical Device Daily Staff Reporter
Steris (Mentor, Ohio) reported the signing of a definitive agreement to acquire all the outstanding shares of privately-owned United States Endoscopy Group (Mentor, Ohio), a company that develops therapeutic and diagnostic medical devices and support accessories used in the gastrointestinal (GI) endoscopy markets worldwide, for $270 million. With the acquisition of US Endoscopy, Steris said it will significantly expand its presence in the GI market and gain direct access to the procedural spaces in the GI market with a franchise of proprietary, single-use consumable medical devices.
"This is the most significant deal we've done in many years," Walt Rosebrough, president/CEO of Steris said during a conference call yesterday. "With the acquisition of this company Steris, will significantly expand its presence in the GI units. "It also provides Steris with a direct sales force in the U.S. and a strong branding."
During the call Rosebrough noted that US Endoscopy has 400 employees has generated double-digit organic growth for many years through successful new product development.
Steris has a strong presence in the procedural spaces within the hospital, in particular the operating room, but has not historically had a presence in the procedural spaces within the GI environment.
The acquisition will add direct access to a multi-billion dollar global market, where US Endoscopy has focused on technology and innovation to build a pipeline of new products which propelled their revenue growth to greater than 15% compounded over the past five years, and allows for attractive margins.
In 2011, US Endoscopy generated revenue of about $70 million and operating income of about $14 million. After adjusting for depreciation and amortization, shareholder expenses and other non-recurring items, adjusted operating income would have been about $20 million in 2011.
"Not only will we gain the size and scale necessary to continue to innovate and grow over the long term, we will also ensure that we can and will remain a vital part of the Greater Cleveland community," Gulam Khan, president/CEO and co-Chairman of US Endoscopy said in a release. "While we have had great success the last two decades, having the support of Steris will better enable us to take full advantage of global opportunities."
Steris said that due to the transaction and integration costs and a less than full-year impact of earnings, the transaction is anticipated to be dilutive by about 5 cents to Steris's earnings in fiscal 2013, but accretive in fiscal 2014 and beyond. Steris said its management believes that the dilutive effect can be absorbed within its current earnings per share outlook of $2 to $2.20 per diluted share for fiscal 2013.
The transaction is subject to certain closing conditions and is expected to close by the end of 2Q13. Steris will finance the acquisition through a combination of cash on hand and borrowings under its existing credit facility. The business will be integrated into Steris' Healthcare business segment.
During the call, Rosebrough noted that the company will not be assuming any debt from US Endoscopy. He also spoke about potential synergies between the firms, particularly in revenue growth.
"We do expect to see some modest cost synergies across the businesses, but this is not a turn two factors into one kind of acquisition," Rosebrough said during the call. "The [operations] for the two businesses are significantly different. We work very hard to make our facilities more and more effective and efficient, and we would do that in their facilities as well. We think that the synergies are largely in the field of revenue growth and product development. We have some knowledge in some areas, but they don't and vice versa."
In other dealmaking activity:
Henry Schein (Melville, New York), a provider of healthcare products and services to office-based dental, medical and animal health practitioners, reported three acquisitions that advance key priorities of the company's 2012-2014 strategic plan. Together these acquisitions represent annual sales of nearly $61 million and will be neutral to the company's 2012 diluted EPS. Financial terms were not disclosed.
Henry Schein enhanced its position in the dental specialty market through the acquisition of Ortho Technology (Tampa, Florida), a $24 million orthodontics business; furthered its strategy of helping medical practitioners operate more efficient and profitable practices by strengthening its U.S. physician office laboratory presence through the acquisition of Modern Laboratory Services (MLS; Bakersfield, California), a $22 million medical distributor; and expanded its geographic footprint in Asia through a merger with Accord (Bangkok, Thailand), a $15 million full-service dental dealer in Thailand, the 26th country in which Henry Schein now has operations or affiliates.
Life Technologies (Carlsbad, California) reported the acquisition of Navigenics (Foster City, California). This acquisition represents Life Technologies' first step in executing against a strategy to build out its molecular diagnostics business through internal development, partnerships and select acquisitions.
Navigenics' multidisciplinary expertise, including its technology infrastructure, user interfaces, online platforms, genomic support services, and an experienced team, will play a central role in the delivery of Life Technologies' molecular diagnostic model. The company's established CLIA-certified laboratory, licensed throughout the U.S., will be employed for design and validation of new diagnostics assays. Life Technologies plans to develop and offer lab-developed tests as well as commercialized assays that have been approved by FDA and other regulatory authorities. Life will also continue to build partnerships with pharmaceutical companies for companion diagnostic development, including participating in clinical trials, which is enabled by the CLIA lab acquisition.
Navigenics' extensive clinical program provides Life Technologies with a leadership position in clinician and patient education and support, which will be leveraged by Life Technologies in building its diagnostics business. The platform includes a network of oncologists, pathologists, and genetic counselors, who will be available to support community-based physicians in the adoption of genetic medicine and assist them in understanding these innovative types of medical information.
"Complex diseases like cancer require physicians to receive and interpret data from the genome, transcriptome and proteome. Life Technologies is the only company in the industry today with the breadth of technology to span the full continuum of diagnostic information necessary to effectively manage such diseases," said Gregory Lucier, chairman/CEO of Life Technologies. "The Navigenics informatics platform allows us to now transform the data from our instrument systems into actionable information and deliver it in real time to physicians around the world."
Published July 18, 2012