Mentor, Ohio-based Steris said it expects that the acquisition will qualify for a tax benefit related to tax-deductible goodwill, effectively reducing the purchase price to approximately $810 million. Key Surgical, a portfolio company of Chicago-based Water Street Healthcare Partners, is located in Eden Prairie, Minn., about 20 miles from Steris’ U.S. laboratory.
Key Surgical was founded in 1988 and anticipates 2o2o annual revenue of approximately $170 million, with adjusted EBIT of approximately $50 million. Key Surgical’s product disposable product portfolio is a natural extension for Steris’ customers in sterile processing departments, operating rooms and endoscopy, according to Steris. The company said it expects the deal to be accretive to its top-line growth, margins and earnings.
“Key Surgical strengthens, complements and expands Steris’ product offering and reach around the globe. Their focus on the sterile processing department, operating room and endoscopy fits perfectly with our core healthcare customers,” said Steris president & CEO Walt Rosebrough in a news release. “The business has demonstrated an ability to grow at rates above industry levels with its product portfolio breadth, a steady stream of new products and a highly effective commercial model.”
Under the terms of the agreement, Steris will purchase the shares of Key Surgical at closing, which is expected by December 31, 2020. The transaction will be financed through a combination of debt and cash on hand, according to Steris, which expects it to add approximately $40 million to revenue and about $0.10 to adjusted earnings per diluted share in its fiscal 2021 fourth quarter.
Steris also expects to realize annualized pre-tax earnings savings of $10 million to $15 million by year three following the close.