Stryker Corp SYK ) recently announced plans to acquire IL-based Sage Products LLC from private equity firm Madison Dearborn Partners through an all-cash transaction worth $2.775 billion. The transaction, once completed, will be Stryker's biggest-ever acquisition.
Sage Products offers goods which are primarily aimed designed for intensive-care units and other hospital settings. The company's products include solutions for patient cleaning, turning and positioning, oral care and skin preparation. Sales climbed 13% year over year to $430 million in fiscal 2015.
The acquisition will enable Stryker to fast penetrate the 'Never Events' (these are serious, largely preventable patient safety incidents that should not occur if the available preventative measures have been implemented) market. The company hopes to use Sage Products' expertise in making intensive care products to build a strong customer base in this area over the long term.
Stryker plans to finance the deal through a combination of existing cash and by raising new debt. However, the additional debt will put further pressure on an already debt-laden (long term debt of $3.25 billion as of Dec 31) balance sheet.
Meanwhile, rating firm Moody's MCO placed Stryker's A3 unsecured note ratings on review for downgrade, following the acquisition.
Nevertheless, the deal is expected to prove accretive to the company owing to Sage Products' complementary portfolio. Stryker expects the transaction to lend it a competitive edge apart from tax benefits worth $500 million. The buyout is expected to drive cash flow growth over the next 15 years.
Following the announcement, Stryker raised its full-year 2016 earnings guidance by a nickel. The figure is now pegged at the range $5.55 to $5.75 per share.
Meanwhile, Stryker expects sales growth of 5% to 6% at constant currency for full-year 2016. Organic growth is also forecasted in the same range. Unfavorable foreign exchange is expected to hurt sales by about 1%, while pricing pressure is expected to make an approximate 1.5%-2% impact in 2016.
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