STERIS to Sell Dental Segment to an affiliate of Peak Rock Capital
- STERIS is set to divest its Dental segment to Peak Rock Capital for $787.5 million, with a possible additional earnout of up to $12.5 million.
- The divestiture is aimed at allowing STERIS to concentrate on its core markets, such as healthcare, pharma, and MedTech.
- Proceeds from the transaction will primarily be used to repay debt, leading to an estimated benefit of approximately $0.35 per diluted share in reduced interest expenses.
- The Dental segment, which generated $407 million in revenue and $86 million in operating income in the previous twelve months, will be treated as discontinued operations in fiscal 2024.
- Guggenheim Securities is acting as the financial advisor, and Jones Day is providing legal counsel to STERIS for the transaction.
- None.
Insights
The divestiture of STERIS's Dental segment represents a strategic realignment of the company's portfolio, focusing on core markets such as healthcare, pharma and MedTech. The transaction's valuation, at $787.5 million with an additional earnout potential of $12.5 million, suggests a strong valuation multiple given the segment's reported revenue of $407 million. This indicates a favorable deal for STERIS, likely reflecting the Dental segment's operating income and market position.
From an investor's standpoint, the use of proceeds to repay debt is a prudent move, potentially improving the company's balance sheet and credit profile. The anticipated reduction in interest expense, estimated at $0.35 per diluted share, provides a tangible benefit to shareholders. This figure allows for a rough calculation of the current interest burden of the debt being repaid, offering insight into the company's financial strategy.
However, the divestiture also means a loss of a revenue-generating segment. Investors should monitor how STERIS plans to drive growth in its remaining segments to compensate for this loss. The company's future outlook and guidance, particularly the impact on earnings, will be important in assessing the long-term implications of this transaction.
STERIS's decision to sell its Dental segment can be seen as a move to enhance focus and resources on its core areas, which could lead to better service and product offerings in the healthcare, pharma and MedTech markets. This reflects a broader industry trend where companies streamline operations to improve efficiency and competitiveness.
The buyer, Peak Rock Capital, is known for investing in middle-market companies. Their acquisition of the Dental segment may lead to further development and growth in that particular market, potentially affecting the competitive dynamics. The Dental market is characterized by technological advancements and a growing demand for dental services, which could mean that Peak Rock Capital sees untapped potential in the segment's growth trajectory.
The transaction's impact on STERIS's market position and financial performance will be clearer once the company issues its fiscal 2025 outlook. Stakeholders should look for changes in market strategy, potential investments in innovation and customer retention in the core markets as indicators of future performance.
The use of transaction proceeds to repay debt is a strategic financial decision that resonates well within the debt market. This move is likely to be viewed positively by creditors and rating agencies, as it demonstrates STERIS's commitment to maintaining a solid financial structure and reducing leverage.
The anticipated improvement in STERIS's interest coverage ratio, as a result of lower interest expenses, could lead to more favorable borrowing terms in the future. It is important for investors to consider the potential for improved debt ratings and the impact on the cost of capital. Such financial restructuring could also provide STERIS with greater flexibility to pursue other strategic initiatives that require capital investment.
As the transaction is set to close in fiscal 2025, the timing and magnitude of debt repayment will be key factors to watch. The specifics of the debt being targeted for repayment will also be of interest, as they may reveal the company's prioritization of high-cost debt or debt nearing maturity.
- Transaction expected to close in STERIS’s first quarter of fiscal 2025
- Divestiture allows STERIS to focus on Customers within core markets
- Proceeds primarily to be used to repay debt
DUBLIN, IRELAND, April 11, 2024 (GLOBE NEWSWIRE) -- ) - STERIS plc (NYSE: STE) (“STERIS” or the “Company”) today announced that the Company has entered into a definitive agreement to divest its Dental segment to Peak Rock Capital, a leading middle-market private investment firm, for
“Since acquiring our Dental segment through the Cantel acquisition, we have focused on deploying lean manufacturing methods to drive operating efficiencies. We have been impressed with the strength of the team, their willingness to adopt lean philosophies, and the leadership position the business has with Customers,” said Dan Carestio, President and Chief Executive Officer of STERIS. “After a thorough review of strategic alternatives, we have decided to divest our Dental segment to allow us to focus on our Customers within our core markets in healthcare, pharma and MedTech who can most benefit from our full portfolio of products and services. We are confident this business will do well with the investment and support of Peak Rock Capital.”
The Transaction is subject to customary closing conditions, including regulatory review, and is anticipated to close in the first quarter of fiscal year 2025. STERIS intends to use the proceeds primarily to repay debt. On a full year run rate basis, STERIS expects the resulting benefit of the reduction in interest expense to be approximately
The Dental segment will be reported as discontinued operations for the fourth quarter and full year of fiscal 2024. The Company will provide outlook for fiscal 2025 reflecting this Transaction when fourth quarter fiscal 2024 results are issued.
Advisors
Guggenheim Securities is serving as financial advisor and Jones Day as legal counsel to STERIS for the Transaction.
About STERIS
STERIS is a leading global provider of products and services that support patient care with an emphasis on infection prevention. WE HELP OUR CUSTOMERS CREATE A HEALTHIER AND SAFER WORLD by providing innovative healthcare, life sciences and dental products and services. For more information, visit www.steris.com.
Company Contact:
Julie Winter, Vice President, Investor Relations and Corporate Communications
Julie_Winter@steris.com
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This release may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to STERIS or its industry, products or activities that are intended to qualify for the protections afforded “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date the statement is made and may be identified by the use of forward-looking terms such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “outlook,” “impact,” “potential,” “confidence,” “improve,” “optimistic,” “deliver,” “orders,” “backlog,” “comfortable,” “trend”, and “seeks,” or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, actions of regulatory agencies, and changes in laws, government regulations, labeling or product approvals or the application or interpretation thereof. Other risk factors are described in STERIS’s other securities filings, including Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2023. Many of these important factors are outside of STERIS’s control. No assurances can be provided as to any result or the timing of any outcome regarding matters described in STERIS’s securities filings or otherwise with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, cost reductions, business strategies, earnings or revenue trends or future financial results. References to products are summaries only and should not be considered the specific terms of the product clearance or literature. Unless legally required, STERIS does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) the ability to consummate the Transaction on the expected terms and within the anticipated time period, or at all, which is dependent on the satisfaction of certain closing conditions, some of which are outside of STERIS’s control, (b) STERIS’s ability to realize the expected benefits of the Transaction, including the earnout payment, (c) the risk that regulatory approvals that are required to complete the Transaction may not be received, may take longer than expected or may impose adverse conditions, (d) the impact of the COVID-19 pandemic or similar public health crises on STERIS’s operations, supply chain, material and labor costs, performance, results, prospects, or value, (e) STERIS's ability to achieve the expected benefits regarding the accounting and tax treatments of the redomiciliation to Ireland , (f) operating costs, Customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, Customers, clients or suppliers) being greater than expected, (g) STERIS’s ability to successfully integrate acquired businesses into its existing businesses, including unknown or inestimable liabilities, impairments, or increases in expected integration costs or difficulties in connection with the integration of such businesses, (h) uncertainties related to tax treatments under the TCJA and the IRA, (i) the possibility that Pillar Two Model Rules could increase tax uncertainty and adversely impact STERIS's provision for income taxes and effective tax rate and subject STERIS to additional income tax in jurisdictions who adopt Pillar Two Model Rules, (j) STERIS's ability to continue to qualify for benefits under certain income tax treaties in light of ratification of more strict income tax treaty rules (through the MLI) in many jurisdictions where STERIS has operations, (k) changes in tax laws or interpretations that could increase our consolidated tax liabilities, including changes in tax laws that would result in STERIS being treated as a domestic corporation for United States federal tax purposes, (l) the potential for increased pressure on pricing or costs that leads to erosion of profit margins, including as a result of inflation, (m) the possibility that market demand will not develop for new technologies, products or applications or services, or business initiatives will take longer, cost more or produce lower benefits than anticipated, (n) the possibility that application of or compliance with laws, court rulings, certifications, regulations, or regulatory actions, including without limitation any of the same relating to FDA, EPA or other regulatory authorities, government investigations, the outcome of any pending or threatened FDA, EPA or other regulatory warning notices, actions, requests, inspections or submissions, the outcome of any pending or threatened litigation brought by private parties, or other requirements or standards may delay, limit or prevent new product or service introductions, affect the production, supply and/or marketing of existing products or services, result in costs to STERIS that may not be covered by insurance, or otherwise affect STERIS’s performance, results, prospects or value, (o) the potential of international unrest, including the Russia-Ukraine or Israel-Hamas military conflicts, economic downturn or effects of currencies, tax assessments, tariffs and/or other trade barriers, adjustments or anticipated rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (p) the possibility of reduced demand, or reductions in the rate of growth in demand, for STERIS’s products and services, (q) the possibility of delays in receipt of orders, order cancellations, or delays in the manufacture or shipment of ordered products, due to supply chain issues or otherwise, or in the provision of services, (r) the possibility that anticipated growth, cost savings, new product acceptance, performance or approvals, or other results may not be achieved, or that transition, labor, competition, timing, execution, impairments, regulatory, governmental, or other issues or risks associated with STERIS’s businesses, industry or initiatives including, without limitation, those matters described in STERIS's various securities filings, may adversely impact STERIS’s performance, results, prospects or value, (s) the impact on STERIS and its operations, or tax liabilities, of Brexit or the exit of other member countries from the EU, and the Company’s ability to respond to such impacts, (t) the impact on STERIS and its operations of any legislation, regulations or orders, including but not limited to any new trade or tax legislation (including CAMT and excise tax on stock buybacks), regulations or orders, that may be implemented by the U.S. administration or Congress, or of any responses thereto, (u) the possibility that anticipated financial results or benefits of recent acquisitions, of STERIS’s restructuring efforts, or of recent divestitures, including anticipated revenue, productivity improvement, cost savings, growth synergies and other anticipated benefits, will not be realized or will be other than anticipated, (v) the level of STERIS’s indebtedness limiting financial flexibility or increasing future borrowing costs, (w) rating agency actions or other occurrences that could affect STERIS’s existing debt or future ability to borrow funds at rates favorable to STERIS or at all, and (x) the effects of changes in credit availability and pricing, as well as the ability of STERIS’s Customers and suppliers to adequately access the credit markets, on favorable terms or at all, when needed.
FAQ
What is the purpose of STERIS divesting its Dental segment to Peak Rock Capital?
How much revenue did the Dental segment contribute in the last twelve months?
When is the expected closing date for the divestiture transaction?
Who is serving as the financial advisor for STERIS in this transaction?
What are the potential benefits of the divestiture for STERIS shareholders?
