The Federal Trade Commission is making efforts to block the proposed $1.9 billion acquisition of UK health care company Synergy by US-based Steris Corporation, stating that the deal violates antitrust laws. The agency says that the merger could reduce competition for radiation sterilization of medical devices, as both companies provide those services on a contract basis. However, Synergy replies that its sterilization services business, Applied Sterilization Technologies (AST), is only a “tiny” part of its business and that it only holds a US market share of between 1.8% and 4%. An administrative trial to investigate the potential consequences of the deal will begin in October 2015.
Through the merger, Steris stands to save on taxes by moving its headquarters to the UK. (It would be the latest in a series of corporate tax inversion transactions — this despite efforts by the US Treasury Department to make such deals more difficult to close.) The combined company would also cut costs by cutting back on back-office staff and eliminating redundant operating costs. However, completion of the deal is being pushed back another six months, if it closes at all.
For their part, Synergy and Steris both plan to fight the FTC’s efforts to block the deal. They have provided the FTC with information as requested and believe that the merger will in fact be procompetitive. Synergy CEO Richard Steeves proclaims that the deal would be “firmly in the interests of all our and Steris’s stakeholders, notably including our respective customers.” In fact, the companies currently have little geographical overlap.
When the deal was announced in 2014, it was described by management as a way to bring together the companies’ strengths, providing higher potential for growth than either could accomplish independently. If the companies do combine, they will have some $2.6 billion in annual revenues (Steris reported earnings of $1.6 billion in 2014, while Synergy reported some $633 million) and operations in 60 countries. Steris’ Isomedix unit and Synergy’s AST unit will together provide outsourced sterilization services, competing not with each other but rather with in-house sterilization operations.
Although some eyebrows lifted at the prospect of another (though relatively small) tax inversion transaction taking place, that didn’t prove to be the deal’s primary problem. The FTC challenge came as a bit of a surprise, as Steris and Synergy have been cooperating with the agency from the get-go and didn’t expect to be blocked. In cases such as this, the companies can either sell off some assets in question (as medical device maker Medtronic recently did in order to complete its own tax inversion acquisition of Covidien) or they can fight the issue at hand (as it appears Steris and Synergy will do).
If the merger ends up being shut down, all will not be lost. Capital injections from private equity investors could help them as they work to expand their respective global operations. Competitor Sterigenics International just closed on such a deal with Warburg Pincus and GTCR; thanks to financial backing by GTCR, Sterigenics has expanded through a number of acquisitions. Furthermore, a growing and aging population requires a higher number of surgeries, placing these companies’ crucial offerings in higher demand. In fact, according to a study titled “Sterilization Technologies – A Global Market Overview,” the global market for sterilization technologies is projected to rise some 12% each year through 2020. So, whether Synergy and Steris join together or remain separate, the forecast looks promising for their future growth.
Diane Ramirez has been a member of the D&B editorial department for more than a decade. She currently covers the health care and insurance industries for Hoover’s.