CEO: $270M acquisition of US Endoscopy is STERIS’ “most significant deal … in many years”

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Medical device company STERIS Corp. (NYSE:STE) will acquire fellow device company US Endoscopy Inc. for $270 million to expand its presence in the GI market, the company announced today.

“This is the most significant deal STERIS has done in many years,” CEO Walt Rosebrough told investors, analysts and reporters on a conference call Tuesday morning.

While STERIS has not historically had a presence in the procedural area of gastrointestinal endoscopy — focusing instead on reprocessing products like soaks and scrubs — Rosebrough said the integration of US Endoscopy’s portfolio of bleed management, retrieval and other GI-related devices is directly aligned with the company’s strategy to target growing markets around its core products.

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The acquisition, expected to close in the second quarter, will also provide STERIS immediate scale with a direct sales force in the U.S. and a strong brand name, Rosebrough added. He pegged the addressable market for these devices at $700 million in U.S. and $2 billion globally.

Chief financial officer Mike Tokich said the $270 million deal, plus the additional $7 million that STERIS will pay for land and buildings, is expected to reduce STERIS’ earnings per share by about 5 cents this fiscal year,  but add to its earnings beginning in fiscal 2014. In 2011, privately held US Endoscopy generated about $70 million in revenue.

STERIS’ healthcare segment accounted for nearly three-fourths of the company’s $1.4 billion revenue last year, but the company has said it expects revenue in this segment to decline a bit this year. STERIS has been struggling over the last few years as it transitions customers to a new model of its flagship product, the System 1 Processor, which was modified so much over the years that in 2009 the U.S. Food and Drug Administration said it no longer considered it a device approved for sale.

In recent years, STERIS has struck development deals with Toshiba, Nephros, GE Healthcare and Royal Philips Electronics, but has not made any big acquisitions. In announcing the company’s full-year financial results earlier this year, Rosebrough said fiscal 2013 would be a turning point for the company as it established “a new foundation from which we intend to grow revenue and earnings in the future.”

The two companies, which are neighbors in Mentor, Ohio, will maintain their separate facilities, Rosebrough said. Specific details regarding staffing have not yet been decided.

[Photo from Sheelamohan]

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Deanna Pogorelc

By Deanna Pogorelc MedCity News

Deanna Pogorelc is a Cleveland-based reporter who writes obsessively about life science startups across the country, looking to technology transfer offices, startup incubators and investment funds to see what’s next in healthcare. She has a bachelor’s degree in journalism from Ball State University and previously covered business and education for a northeast Indiana newspaper.
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