SYNO Synovis Life Technologies, Inc. (MM)

Baxter International (BAX) recently forged a definitive agreement to take over Synovis Life Technologies (SYNO), a well-known provider of mechanical and biological products for the repair of soft tissue utilized in a large number of surgical operations. With this acquisition, Baxter further expands its offerings in the area of biosurgery and regenerative treatment.   

The Synovis product line includes Tissue-Guard and Varitas Collagen Matrix. The company’s offerings are used in several procedures, such as hernia repair, vascular surgery and surgery for obesity. Other products, such as Coupler, Flow Coupler and Gem Microclip, are utilized for procedures like sealing minute blood vessels. Synovis’ latest area of expertise is wound management and orthopedic products.

Synovis had annual revenues of about $70 million in 2010. Baxter anticipates sales growth for Synovis’ offerings to be accretive to its future top-line. Baxter also expects the deal to be dilutive to its fiscal 2012 earnings by about 4 cents. The acquisition is forecast to be neutral for its 2013 earnings and turn subsequently accretive.      

The Board of Synovis has unanimously agreed to proceed with the deal. It recommends that its shareholders approve the transaction at an offer price of $28 per share; thereby valuing the company at $325 million, or about $260 million, after accounting for net cash.

Baxter anticipates that the deal will be closed in the first quarter of fiscal 2012. The transaction is contingent to shareholder approval, closing clauses and expiration of waiting period as per Hart-Scott-Rodino Antitrust Improvement Act.

The news regarding Baxter still remains mixed. On the positive side, Baxter’s focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases.

On the flip side, despite recent stability in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about sluggishness in sales, a slightly somber outlook for some hospital spending and tightening of reimbursement.

Improved execution has lifted sentiment somewhat toward Baxter. The company is a good bet for value investors willing to wait as fundamentals improve further. Among others, it competes with Becton, Dickinson and Co. (BDX) in certain niches. We are currently Neutral on the stock, backed by a short-term Zacks #3 Rank (Hold).

 
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