Dive Brief:
- Steris announced late Tuesday that it agreed to purchase Cantel Medical in a cash and stock deal of approximately $4.6 billion, continuing a run of medtech M&A in the first weeks of January.
- Cantel Medical adds to Steris' infection control business with a collection of endoscopy products and launches the company into the dental market. Steris said in the announcement that it expects the deal to close by June 30, which is the end of the company's first quarter of fiscal 2022.
- Wall Street analysts were positive on the deal, saying Steris was the most logical buyer and Cantel Medical has room to grow. "We believe that the COVID-19 pandemic has resulted in an increased focus on infection prevention, which we expect to serve as a tailwind for [Cantel Medical's] business over the longer-term," Needham analysts wrote.
Dive Insight:
The acquisition follows a flurry of albeit smaller deal announcements in January, including PerkinElmer's $591 million purchase of Oxford Immunotec, two deal announcements from Hologic, and one from Stryker. EY consultants said that medtech M&A will take off in 2021 due to a record high of nearly $500 billion in financial firepower. While 2021 has already seen multiple tuck-ins, EY projected that a handful of deals over $1 billion is likely.
Steris has done just that with the largest medtech deal so far this year at about $4.6 billion.
The deal values Cantel Medical at $84.66 per share, slightly above where the stock price closed on Tuesday. The company's stock price dropped by as much as about 6% to $78.81 in after-market trading and continued to drop by over 1.5% when the market opened Wednesday.
While Needham analysts were surprised that there was no premium built into the valuation — $84.66 is where the stock closed on Monday — they said that the amount is fair and accounts for recent momentum.
Cantel Medical's shares have risen 38% since Dec. 7, while the S&P 500 rose 3% over that period, the analysts noted, also writing that they do not expect competing offers despite the lack of a premium built-in.
Investors seemed to take a wait-and-see approach on Steris. The company's stock price dropped by over 4% Tuesday before the deal was announced, and there was little movement early Wednesday.
However, the announcement does line up with recent strategy comments from Steris.
CEO Walter Rosebrough said during a November 2020 earnings call that while the company has been more cautious in spending cash due to the coronavirus pandemic's impact on the economy, Steris plans to increase M&A activity as the environment normalizes.
"The cash will grow," Rosebrough said. "We would hope to be able to spend as much of that as possible to grow in the future in a reasonable way, organically and through acquisition."
The company also recently expanded its market presence with the $850 million purchase of Key Surgical in October 2020.
Steris and Cantel Medical do have some overlapping businesses in the gastrointestinal market, but they should be able to avoid any antitrust concerns with some small divestitures, according to Needham.
