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Steris Corporation ( STE - Snapshot Report ) has expanded its portfolio banking on two acquisitions – Spectrum Surgical Instruments and Total Repair Express for $110 million. After adjusting for anticipated tax benefits, the purchase price came in at approximately $93 million. The transactions are likely to have no impact on Steris’ earnings in fiscal 2013, but are expected to be accretive in fiscal 2014 and beyond.
The privately held Spectrum Surgical Instruments and Total Repair Express, with combined revenue of about $72 million, provide surgical instrument repair services and instrument care products to hospitals and surgery centers in the US. They repair the instruments both at the hospital premises and at central repair facilities. The services offered encompass inspection, cleaning, lubrication and repair of reusable surgical instruments such as forceps, retractors and scissors. On the contrary, the current Service business of Steris is primarily focused on the installation, maintenance and repair of its capital equipments in healthcare facilities.
These two acquisitions would be integrated into Steris's Healthcare segment as part of its Specialty Services business. Banking on this deal, the company would have one of the largest surgical instrument repair businesses in the U.S., which can be expanded further by leveraging its existing customer base.
Hospitals are under the growing pressure to cut costs and increase procedure productivity, hence they have opted to outsource the repair of surgical instruments to keep operating costs under control. According to estimates, the amount of outsourced business is more than $500 million in the US and is growing in the mid- to high-single digits.
Steris is on an acquisition spree and has expanded its presence in the gastrointestinal market with its decision to acquire United States Endoscopy for $270.0 million in cash in July. The company’s acquisitions are in sync with its strategy of expansion in areas with attractive market dynamics.
Steris is expected to report fiscal 2013 second quarter results on October 31, 2012. The company had delivered an earnings surprise of 17.8% for the first quarter of fiscal 2013 (ended June 30). Shares for this provider of medical appliances and equipment have been rising over the recent past, and hit the 52-week high of $37.18 on October 5.
The Healthcare segment of Steris witnessed tough competition from players namely Ecolab ( ECL - Analyst Report ) , 3M ( MMM - Analyst Report ) , Cantel Medical ( CMN - Snapshot Report ) , among others.
The stock carries a Zacks #2 Rank (Buy) in the short term.
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