Smiths Group announced today that it has agreed to acquire the privately-held US medical device company, Medex, Inc, in a transaction which will greatly enhance the presence of Smiths Medical in the US and international markets for devices used in critical care.
- Smiths will pay 9.3 times 2004 EV/EBITDA for privately-held Medex, Inc
- Will increase Smiths Medicals sales by a third and profits by nearly a half
- Will give Smiths a leading position in anaesthesia and safety devices
- Significant opportunities for revenue and cost synergies
- Immediately earnings enhancing, will exceed WACC in 2nd full year
Commenting on the acquisition of Medex, Keith Butler-Wheelhouse, chief executive of Smiths said:
"Medex is a first rate company, is an excellent strategic fit and we have secured it at a good price. This transaction is a significant step in the continuing evolution of Smiths, and moves us into the medical devices big league."
Smiths will pay the current owners of Medex $625m in cash for the companys equity, subject to any closing adjustment, and will assume some $300m of net debt. One Equity Partners, an affiliate of JP Morgan Chase & Co, owns 83.2% of the company, with the remainder held by management and employees. The acquisition will be funded from a combination of Smiths existing cash resources and additional US dollar borrowings. The addition of Medex will be earnings enhancing from the outset. Completion, expected in the New Year, is subject to regulatory approval.
Medex is a leading supplier of infusion equipment used in critical care, specialising in intravenous infusion catheters which prevent needle-stick injuries. Its products are highly complementary with the Smiths Medical range, selling to the same customer base in hospitals and other healthcare locations. In a full year, the addition of Medex will increase the sales of Smiths Medical by around a third and profits by almost a half.
For the 12 months to 31 December 2004, Medex is expected to achieve sales of $330m, underlying operating profit of $75m and EBITDA of $100m. For the 9 months to September, Medex reported underlying operating profit of $59m and pre-tax profit of $39m. The company was formed through an MBO by its current management team in February 2001 from Saint Gobain Performance Plastics Corp. It subsequently acquired Inhalation Plastics, Inc in May 2002 and the vascular access business of Ethicon Endo-Surgery (Jelco) from Johnson & Johnson in May 2003. The reported audited loss before tax for the year ended December 2003 was $7m and net assets at that date were $91m. Smiths does not believe this reflected the underlying performance of Medex, as it included only a 7 month contribution from Jelco and it was also depressed by a number of non-recurring charges, including $18m relating to one-off acquisition costs. The businesses have, on a pro forma basis, delivered strong underlying sales growth and cash generation over the past three years.
Commenting on the benefit of bringing Medex into Smiths Medical, Lawrence Kinet, board member for the division said: "This is a great opportunity for Smiths Medical. Annual sales will be approaching $1.25 billion, and we become more competitive by offering a wider range of products. Well have a greater presence in critical care, especially in safety devices, and we can use our global network to take the Medex range into new markets where we know there is strong demand."
Headquartered in Carlsbad, California, Medex employs some 2,000 people, including 1,100 in the US. The US operations are located in Ohio, Illinois, Connecticut and Georgia, with additional plants in Mexico, Germany, Italy and the UK. The senior management team, led by Dominick Arena, president & chief executive officer, have initially agreed to remain in place for at least one year following completion. Integration teams will deliver sales, operational and administration synergies quickly, once Medex becomes part of Smiths Group.
Two thirds of Medexs sales are of intravenous catheters, and its products are recognised as among the market leaders. The range incorporates devices which help prevent accidental injuries caused by sharps which remain exposed after use. These Medex products are aligned in the market with the Smiths Needle-Pro range of safety devices. Other product lines include pre-packaged trays of single-use products for catheterisation procedures, similar to Smiths kits for anaesthesia applications. Medex also makes advanced syringe pumps which incorporate medication error detection, while Smiths is the leading supplier of ambulatory infusion pumps in the worldwide market.
Through this transaction, Smiths expects to generate significant additional sales of both Smiths Medical and Medex products. The Medex products will increase Smiths presence at a number of important customer call points, especially infection control departments, intensive care units and respiratory departments. Geographically, two thirds of Medexs sales are made in North America and, while the company has already successfully established a presence in Europe, there is considerable opportunity to take its products more widely into world markets through Smiths Medical International.
Smiths Group was advised by Morgan Stanley. Banc of America Securities LLC acted as lead financial advisor to Medex and One Equity Partners, and Credit Suisse First Boston LLC and Lehman Brothers, Inc were co-advisors in this transaction.
Smiths Medical is a leading supplier of devices used during critical and intensive care, surgery, post-operative care during recovery, and in a series of high-end home infusion therapies. For the year ended 31 July 2004 Smiths Medical had sales of 488m ($853m).
Smiths Group offers advanced technology solutions in aerospace, detection, medical and specialty engineering sectors. Listed on the London Stock Exchange, the company recorded sales of 2.7 billion ($4.7 billion) and pre-tax profit on ordinary activities of 350m ($613m) for the year ended 31 July 2004. Close to 60% of operating income originates from the United States, where 13,000 of the companys total 27,000 people are employed.
An interview with Keith Butler-Wheelhouse, chief executive of Smiths Group is available in video, audio and text on www.smiths-group.com and on http://www.cantos.com
There will be a conference call for investors at 11.00am UK time today, Monday, 6 December. To take part, in the UK, telephone 020 7019 0810. From overseas, telephone +44 (0) 20 7019 0810. The call will be archived on +44 (0) 20 7970 4957.