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Stericycle Completes Shred-it Acquisition from Cintas

Waste management firm Stericycle, Inc.SRCL recently completed the acquisition of information destruction services provider Shred-it International from business services provider Cintas CorporationCTAS and its other partners for $2.3 billion in cash. Shred-it will operate now as a wholly-owned subsidiary of Stericycle.

The Acquiree

Since its inception in 1988, Shred-it emerged as one of the leading paper shredding companies in the world, offering service to over 400,000 customers in 15 different countries. The company specializes in tailored document destruction services that allow businesses to comply with legislation, while ensuring that confidential business information is kept secure at all times. For the 12-month period ending March 2015, Shred-it generated pro forma revenues of $726 million.

In April 2014, Cintas completed the divestiture of its Document Shredding business by forming a new partnership with the shareholders of Shred-it. The two companies merged to create a new firm that operated under the Shred-it name. Cintas had a 42% ownership stake in this entity, while the remaining 58% was owned by the shareholders of Shred-it.

The Acquirer

Incorporated in 1989 and headquartered in Lake Forest, IL, Stericycle is a leading provider of regulated medical waste management and product recall and return services in the U.S. It operates a national medical waste management network that caters to medical schools, hospitals, and other healthcare providers.

Medical waste includes single-use disposables like needles, syringes, gloves, and other supplies that have been in contact with blood or other body fluids, blood products and other items that can spread infection. The company operates in the U.S., Argentina, Canada, Mexico, Chile, the United Kingdom, Ireland and Romania, with a spread-out network of processing or combined processing and collection sites.

Transaction Rationale

With Shred-it on board, Stericycle is expected to enhance its core compliance solutions portfolio, thereby fuelling its future growth opportunities. The strategic purchase will expand its operational infrastructure and enable it to capitalize on route-based logistics know-how. The acquisition is likely to create a new operational platform for Stericycle and offer specialized services, thereby augmenting its value proposition to clients.

The transaction is anticipated to result in cost synergies to the tune of $20-$30 million by 2018, leading to accretive earnings. Earnings per share is expected to increase by at least 10% in 2016 and by the high-teens in 2018, generating robust cash flow and over $1 billion in EBITDA in 2016 through improved margins and debt repayment.

Moving Forward

A significant portion of Stericycle's historical growth is attributable to the successful integration of acquisitions in both domestic and international markets. The company is continuously on the lookout for strategic acquisitions that will enhance its market share and expand its geographic base. We believe that the current acquisition will also serve the company in good stead, expanding its global client base and generating incremental revenues.

Stericycle currently has a Zacks Rank #4 (Sell). A couple of stocks that look promising and are worth a look now in the broader Services industry include FTI Consulting, Inc. FCN and The Hackett Group, Inc. HCKT , both carrying a Zacks Rank #2 (Buy).

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CINTAS CORP (CTAS): Free Stock Analysis Report

STERICYCLE INC (SRCL): Free Stock Analysis Report

FTI CONSULTING (FCN): Free Stock Analysis Report

HACKETT GROUP (HCKT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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