The deal: Steris buyout of Synergy Health
The price tag: $1.9 billion
Inversion? Yes, Steris will be incorporated in the U.K.
Status: Announced; closure hoped for by end of Q1 2015
Why it matters: This deal shows that tax inversion pays--assuming antitrust hurdles, or those gnarly Treasury Department rules designed to deter the practice, don't get in the way.
Steris ($STE), the infection-prevention and sterilization products and services specialist, was one of the best performing med tech stocks last year, and about half of the 35% gain occurred after October's announcement of the acquisition of competitor Synergy Health.
The acquisition is expected to lower the company's fiscal tax rate to 25% in fiscal 2016 from the current 35%. In addition, investors are surely pleased that the transaction is expected to result in total annual pretax savings of at least $30 million, with half of that achieved in 2016.
But the deal could be delayed--or even derailed. The U.S. Federal Trade Commission has issued a second request for information, citing competition concerns. "We continue to work toward a March 31 closing date, but the FTC second request may cause us to extend beyond that time," Steris CEO Walter Rosebrough said in a statement.
|Steris CEO Walter Rosebrough|
Rosebrough was prevented from saying too much about the transaction due to the infamous U.K. Takeover Code. (Thank you, Pfizer ($PFE), AstraZeneca ($AZN) and the summer of pharma and med tech merger mania for making everybody familiar with, or more likely confused by, its machinations.)
Assuming the looming acquisition goes through, the addition of Synergy will expose Steris to global markets. It currently makes about three-fourths of its $1.9 billion in revenue from the U.S.
On the other hand, Synergy had $605 million in fiscal 2014 revenues, with almost 6,000 employees at 135 sites around the world. For the past 5 years, Synergy has been focused on strengthening its position in Europe and developing opportunities in Asia and the Americas. It provides sterilization services to one out of 5 hospitals in the U.K., with three-quarters of its revenues being ex-U.S.
Steris argues that the target's global strategy ameliorates U.S. antitrust concerns but notes that the deal is politically sensitive for another reason as well: It was among the first inversion deals announced after the Treasury Department's issuance of new rules designed to make the tax-saving practice less attractive.
In related news, private equity firm GTCR is looking to unload Sterigenics International, another sterilization company, for $1.5 billion, including debt.
Private equity firm looks to unload sterilization services company for $1.5B
Steris to buy Synergy for $1.9B in another med tech tax inversion deal