Steris to Buy Integrated Medical Systems - Analyst Blog

The healthcare sector has been witnessing acquisitions since the beginning of 2014. Stryker Corporation SYK closed the acquisition of Pivot Medical, Inc. in March while Thermo Fisher Scientific, Inc. TMO completed the buyout of Life Technologies Corporation in February. Major drug retailer Safeway Inc. SWY will soon be acquired by privately held AB Acquisitions LLC.          

In the same vein, Steris Corp. STE also recently signed a definitive agreement to acquire Integrated Medical Systems International, Inc. Steris is expected to pay a purchase price of approximately $165 million, plus nearly $10 million for the purchase of real estate. However, after adjusting for the expected tax benefits, the acquisition may cost Steris approximately $140 million. Steris will finance the acquisition through borrowings under its prevailing credit facility. The acquisition which is expected to be completed by the first quarter of 2015 is anticipated to be accretive on its operating income by approximately $15 million in a full fiscal year.

Integrated Medical Systems is an endoscope repair, surgical instrument management and sterile processing consulting company.  It is expected to report $150 million in revenues during the current calendar year. Although the market in which Integrated Medical Systems operates is highly competitive, we believe there will be sufficient demand for these products in the U.S. in the near term as the company estimates the demand to rise in mid-to-high single digits annually.

Post acquisition, Integrated Medical Systems will be incorporated into Steris' Healthcare segment as part of the company's Specialty Services business.  The Healthcare segment, which accounted for 71.6% of revenues in the first nine months of fiscal 2013, manufactures and sells capital equipment, accessory, consumable and service solutions to healthcare providers, including acute care hospitals, surgery and gastrointestinal centers. This segment experienced a 9.3% growth in revenues over the first nine months of fiscal 2012. Growth was primarily driven by rise in both consumable and service revenues largely on the back of fiscal 2013 business acquisitions.

This deal is in sync with Steris' robust and consistent inorganic growth strategy. In a bid to expand its product offerings and geographical boundaries, the company acquired United States Endoscopy Group in Jul 2012 to consolidate its presence in the gastrointestinal market. Steris also acquired Spectrum Surgical Instruments Corp. and Total Repair Express in 2012 along with Florida Surgical Repair in Dec 2013, and integrated them into its Healthcare segment as part of its Specialty Services business. We are also optimistic about the synergies expected from the impending acquisition of Integrated Medical Systems and consider this deal important in strengthening the foothold of Steris in the healthcare market.

Currently, Steris carries a Zacks Rank #4 (Sell). Thermo Fisher is a better-ranked stock in the broader medical industry with a Zacks Rank #2 (Buy).