Covidien ($COV) is lightening its stake in the medical sealant market, agreeing to sell its Confluent Surgical product line to Integra LifeSciences ($IART) for $235 million as it cuts costs and refocuses on high-growth spaces.
Under the agreement, Integra gets Covidien's DuraSeal, VascuSeal and SprayShield lines of soft tissue repair products, which hauled in about $65 million in sales last year, Covidien said. Integra is paying $235 million up front with another $30 million tied to performance milestones, and both companies expect the deal to close by the end of March.
For Covidien, the divestiture allows it "to better focus on its global strategic priorities," Medical Devices President Bryan Hanson said in a statement, and, lately, that means expanding its presence in emerging markets and bankrolling the development of innovative technologies like renal denervation and new treatments for peripheral artery disease. Last month, the company revealed its plans to save up to $300 million a year by cutting jobs and closing facilities, all part of its effort to reshape its business model after spinning out its pharma segment over the summer.
The smaller Integra, on the other hand, has a lot to gain from integrating an established brand in the surgical world, and the company figures Covidien's technology will add between $57 million to $60 million to revenue in the first year and then grow 3% to 5% annually. Integra already has relationships with surgeons and a well-established line of neurosurgery products, segment President Robert Davis said, and the Covidien deal provides the scale and brand recognition it needs to keep growing.
"This acquisition perfectly complements our global neurosurgery growth strategy aimed at providing a broader set of solutions for surgical procedures in the head," Davis said in a statement. "Together with our broad DuraGen product line, we are fortunate to have even more options to serve our customers and the individual needs of their patients."
Covidien said the sale will have a minor impact on earnings per share for fiscal 2014, but the company believes its underlying business strength will keep the annual outlook on track.
Tyco Healthcare, later spun out into Covidien, acquired the once-independent Confluent Surgical in 2006 for $245 million.
- read Covidien's announcement
- check out Integra's statement