Steris inks $850M deal for Key Surgical adds to MedTech M&A wave

Steris, which sells infection prevention, surgical equipment and other hospital products, said Monday it agreed to acquire Key Surgical in a $850 million deal that adds complementary product lines and expands its geographic reach.

The acquisition continues a drumbeat of deals that has characterized the medtech merger landscape since August, as potential buyers take advantage of low interest rates to finance growth ambitions. On a call to discuss the deal, however, CEO Walter Rosebrough said Steris had been looking at this potential transaction “for years, not months.”

Analysts at Needham said the deal makes “strategic sense” for Steris and could boost the company’s adjusted earnings per share by 47 cents in fiscal 2022 and 58 cents come fiscal 2023.

Dive Insight:
Medtech deal-making picked up pace in late summer as companies began to gain a clearer perspective on business repercussions from the coronavirus pandemic. Among the standouts, Siemens Healthineers announced plans to acquire Varian Medical Systems for $16.4 billion, while Illumina agreed to pay $8 billion for the 85% of liquid biopsy test provider Grail that it did not already own.

Smaller transactions announced in recent weeks include Smith & Nephew’s $240 million acquisition of Integra LifeSciences’ extremity orthopaedics assets, Philips’ $275 million deal for Intact Vascular, and Medtronic’s purchases of Companion Medical and Avenu Medical, both for undisclosed sums.

EY, in an annual report on the medtech industry out this week, predicted a potential “surge of acquisitions” by big players in the sector, in a rebound from the 41% drop in total deal value this year for transactions under $10 billion.

Steris’ chief executive said the pandemic temporarily paused progress toward the deal for Key Surgical in March, but talks restarted a couple of months ago. Current low interest rates made the timing even more attractive, he added.

Key Surgical’s sterile processing, operating room and endoscopy businesses fit with Steris’ core offerings, adding a significant and growing revenue stream and solid profitability, Rosebrough said. The company, which Steris will acquire from Water Street Healthcare Partners, has demonstrated an ability to grow at rates above industry levels, Steris touted.

The takeout target has faced supply chain challenges resulting from the pandemic, but has also been positioned to benefit from increased demand for the personal protective equipment it sells, for example.

Steris expects the acquisition to be immediately accretive, adding about $40 million to revenue and 10 cents to adjusted earnings per share in Steris’ fiscal fourth quarter.

Needham’s analysts estimated that Key Surgical, which has generated low-double-digit revenue growth in recent years, could add 60 basis points to Steris’ organic revenue growth. “We believe the transaction has attractive financial potential and should strengthen (Steris’) current portfolio,” said the analysts, noting that the acquisition is the company’s biggest since its $2.1 billion purchase of Synergy Health in 2015.

Steris expects the deal to close by Dec. 31 of this year. – Medtech Dive