Steris plc has agreed to buy Cantel Medical Corp. for approximately $3.6 billion, in a cash and stock transaction that unites two key players in the infection prevention space. The combined company offers a number of synergies.

Cantel’s medical portfolio is expected to bolster and expand Steris’ endoscopy offerings, with a full-suite of high-level disinfection consumables, capital equipment and services plus single-use accessories. The Little Falls, N.J.-based company also makes products for dental offices, giving Steris a gateway into a new customer group that has seen an increase in infection prevention concerns.

In its most recent fiscal year, ended July 31, 2020, Cantel reported revenue of about $1 billion, with adjusted earnings before interest and taxes of $134 million.

Natural fit

“We have long appreciated Cantel, which is a natural complement and extension to Steris’ product and service offerings, global reach and customers. Our companies share a similar focus on infection prevention across a range of health care customers,” said Walt Rosebrough, Steris’ president and CEO. “Combined we will offer a broader set of customers a more diversified selection of infection prevention and procedural products and services.”

Dublin, Ireland-based Steris isn’t the only one that stands to gain. During a Tuesday M&A call, Cantel CEO George Fotiades pointed to Steris’ line of chemistries, sterilants, sterility assurance products and biological indicators. “COVID has certainly kicked the infection prevention needs up a notch considerably and for the long term” in dental offices, he said, adding Steris’ products “complete this circle” in Cantel’s portfolio.

The deal is expected to bring about annualized pretax cost synergies of about $110 million by the fourth year following the close, largely due to cost-cutting opportunities in commercial integration, manufacturing and service operations. About half of that realized will be realized in the first two years, the companies said.

Financial terms

Under the terms of the definitive agreement, Steris will acquire Cantel, through a U.S. subsidiary, for $84.66 a share – based on Steris’ closing share price of $200.46 on Jan. 11, 2021. The price represents a total equity value of roughly $3.6 billion and a total enterprise value of about $4.6 billion, including Cantel’s net debt and convertible notes.

Steris will fund the cash portion of the deal and repay a significant share of Cantel’s current debt using about $2 billion of new debt, and has secured fully committed bridge financing to do so.

The boards of both companies have unanimously approved the deal. It is expected to close by June 30, which is the end of Steris’ fiscal 2022 first quarter, pending the customary regulatory approvals.

Fotiades called the merger a “perfect fit” for Cantel.

“We’ve long admired Steris for their track record of consistency and resiliency through market cycles and disruptions, including the COVID pandemic, which has enabled them to become one of the most trusted names in the industry,” he said. “The combined companies complement each other, providing a comprehensive portfolio of infection prevention and control solutions for hospitals, ambulatory surgery centers, dental offices and life science customers.”

Cross-sell opportunities

Steris focuses on three business segments: hospitals and ambulatory surgery centers (ASCs); applied sterilization technologies, which largely supports medical device companies; and life sciences, which mainly supports pharma ventures.

Looking at cross-sell opportunities, Rosebrough said the biggest area is in gastrointestinal, where Cantel’s strength exceeds that of Steris. There is also some minor crossover in hospital and ASC.

“We have a nice history of successful M&A transactions focused primarily on adding products and services that either expand our relationships with these customers and/or grow our geographical reach,” Rosebrough said. The company, which has a presence in Mentor, Ohio, gets about three quarters of its revenue from the U.S., with the remainder spread worldwide.

Rosebrough said the Cantel acquisition should allow Steris “to continue to generate mid to high single-digit revenue growth and leverage that for double-digit earnings growth over time.”

While it likely to slow the pace of additional acquisitions near term, “over the longer term, our plans to grow through organic initiatives and M&A are unchanged,” he said.

Steris completed its prior acquisition of Key Surgical LLC, of Eden Prairie, Minn., for $850 million in November. Fotiades said that company’s inside sales model could provide Cantel a broader footprint and bundle to take to hospitals. “It’s a very cost-effective way of being able to reach many, many points of care and could be an interesting opportunity here.”

Shares of Cantel (NYSE:CMD) closed down 0.94% at $83.87 on Tuesday. Steris shares (NYSE:STE) decreased 4.06% to $192.06.