STERIS plc STE recently announced the completion of the previously-announced acquisition of Cantel Medical -- a global provider of infection prevention products and services primarily to endoscopy and dental customers. In January 2021, STERIS entered into a definitive agreement to acquire Cantel Medical, through a U.S. subsidiary.
The acquisition agreement was settled at a total equity value of nearly $3.6 billion and a total enterprise value of around $4.6 billion, including Cantel Medical’s net debt and convertible notes.
This acquisition is expected to add to STERIS' infection control business with a collection of endoscopy products and will extend the company’s reach to dental customers.
Per an announcement made on Jan 12, STERIS expects to fund the cash portion of the transaction consideration. The company has obtained fully committed bridge financing and will repay a significant amount of Cantel Medical’s existing debt with nearly $2.0 billion of new debt.
Following the closure, both companies project to realize annualized pre-tax cost synergies of around $110 million by the end of fourth fiscal year, with nearly 50% realized in the first two years.
Significance of the Acquisition
Per STERIS management, acquisition of Cantel Medical will allow STERIS to offer more diversified selection of infection prevention and procedural products and services to a broader range of customers. This acquisition will enable STERIS and Cantel Medical’s franchises to build a stronger global business, serving a broader set of customers.
The addition of Cantel Medical portfolio to STERIS will fortify and expand STERIS’ Endoscopy offerings, adding a complete range of high-level disinfection consumables, capital equipment and services along with additional single-use accessories. Further, Cantel Medical’s Dental business will enable STERIS to extend its footprint into a new customer segment.
Per Cantel Medical’s management, both companies will create value opportunity that is effective for both today and in a post-COVID world.
During the fourth-quarter earnings call, STERIS noted that the company witnessed solid revenue growth across three of its reporting segments amid the post-pandemic recovery. Revenues at Applied Sterilization Technologies improved 14.6%, reflecting increased demand from medical device customers during the quarter. Meanwhile, revenues at the Life Sciences segment rose 7.5% while Healthcare revenues rose 2.8% year over year in the fourth quarter of fiscal 2021.
Further, STERIS noted that with the addition of Key Surgical and Cantel Medical products and services, the company will be better positioned to meet the needs of customers. STERIS expects these long-term-oriented actions to drive revenues and profitability.
Per a report by Grand View Research, the global endoscopes market size was valued at $10.8 billion in 2020 and is expected reach $19.4 billion by 2028, at a CAGR of 8%.
Per a report by Grand View Research, the global oral care market size was valued at $31.7 billion in 2020 and is expected to reach $49.5 billion by 2028, at a CAGR of 5.9%.
Considering the market opportunities, STERIS’ recent acquisition to expand Endoscopy offerings and extend reach to dental customers is well-timed.
Shares of the company have gained 17.1% in a year’s time compared with the industry’s 11.4% rise.
Zacks Rank and Other Key Picks
Currently, the company carries a Zacks Rank #2 (Buy).
A few similar-ranked stocks from the broader medical space are Envista Holdings Corporation NVST, Inogen, Inc INGN and IDEXX Laboratories, Inc. IDXX, each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Envista Holdings has an estimated long-term earnings growth rate of 26%.
Inogen has an estimated long-term earnings growth rate of 33%.
IDEXX Laboratories has a projected long-term earnings growth rate of 20%.
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