LITTLE FALLS, N.J. and
CHICAGO, July 30, 2019 /PRNewswire/ -- Cantel Medical
Corp. (NYSE:CMD) ("Cantel" or the "Company"), a global leader in
instrument reprocessing and innovative infection prevention
products and services, today announced that it has entered into a
definitive agreement to acquire privately-held Hu-Friedy Mfg. Co.
("Hu-Friedy"), a 111-year-old global leading manufacturer of
instruments and instrument reprocessing workflow systems serving
the dental industry. This combination creates a provider of
comprehensive infection prevention, instrument and instrument
management solutions to optimize dental practitioners' need for
superior clinical performance and best-in-class infection
prevention practices. Cantel is acquiring Hu-Friedy for
$725 million in upfront cash and
stock consideration, and up to $50
million in earnout payments payable in cash and stock
conditional on the achievement of commercial milestones in the
first eighteen months after closing. The transaction structure is
anticipated to result in tax benefits to Cantel presently valued at
more than $100 million, which would
result in a net purchase price of $625
million for the upfront consideration and up to
approximately $675 million in
consideration including potential earnout payments.
The Company will hold a conference call to discuss the
acquisition today at 8:30 a.m. Eastern
Time. Call-in details are included below.
Combining Hu-Friedy's leading position in dental instrumentation
and instrument management systems with Cantel's leading dental
infection prevention consumables meaningfully accelerates Cantel's
strategy to be the leading global provider of innovative infection
prevention and reprocessing workflow solutions and education across
its key end markets. During the twelve-month period ended
May 31, 2019, Hu-Friedy generated
approximately $214 million in
revenue, and adjusted EBITDA of approximately $48 million.
"The combination of our two dental businesses provides a clear
and immediate opportunity to become the leading provider of a
'Complete Circle of Protection' offering for instrument
reprocessing workflow and infection prevention and compliance
solutions in the dental industry," said George Fotiades, president and chief executive
officer of Cantel. "By bringing together our highly complementary
dental portfolios, we will create a business that is uniquely
positioned to address the most critical workflow needs of our
customers while improving patient care. Hu-Friedy brings us the
scale, commercial capabilities and portfolio breadth to enable our
dental business to be a significant driver of long-term profitable
growth for Cantel."
"We are excited to join forces with Cantel and are looking
forward to the opportunities this combination will bring for our
customers, employees and other stakeholders," said Ron Saslow, chairman and chief executive officer
of Hu-Friedy. "As a leader in dental instrumentation and instrument
management solutions, Hu-Friedy's combination with the Cantel
portfolio of leading infection prevention dental consumables is a
perfect match to further enhance our ability to serve our dental
customers."
Hu-Friedy has built a position as a leader in the dental
instruments and Instrument Management System ("IMS") categories,
with a 90 percent branded portfolio, enjoying nearly 100 percent
brand awareness among dentists and hygienists.
Hu-Friedy has a large and sophisticated sales and customer care
team, supported by a strong marketing organization using
industry-leading data analytics. This will enhance Cantel's
commercial and customer engagement capabilities within the dental
industry, which is expected to enable long-term growth. In
addition, Hu-Friedy's leading education and training offerings,
well-established presence in dental schools and continued work and
engagement with key opinion leaders will enable the combined
business to provide a differentiated education and broad
solution-based offering to the dental industry.
Ron Saslow and Ken Serota, president of Hu-Friedy, will lead
the combined dental business post-closing. Gary Steinberg, who
has successfully built the Cantel dental division since the
acquisition of Crosstex, will assist in the post-close transition
and integration of these two businesses and will retire at the end
of the calendar year.
Financial Highlights
Under the terms of the acquisition, Cantel will pay $725 million upfront for Hu-Friedy, up to
$60 million of which will be paid in
Cantel stock (with the specific amount at Cantel's election) with
the remainder to be paid in cash. An additional $50 million in potential cash and stock earnout
payments may be payable to Hu-Friedy shareholders upon achievement
of certain commercial milestones in the eighteen months following
closing of the transaction.
As a result of the transaction structure, the acquisition will
generate an anticipated tax benefit, which Cantel has valued at
more than $100 million. Cantel
expects this tax benefit to positively impact cash flows over
approximately 15 years. Net of this tax benefit, the total
consideration implied would be $625
million upfront and up to $675
million including earnout payments.
The combination is expected to generate annual cost synergies of
at least $10 million by the third
year following closing of the transaction.
The acquisition is also expected to unlock potential for
significant accelerated revenue growth. Cantel expects to realize
potential revenue synergies by integrating Crosstex's best-in-class
infection prevention consumables with Hu-Friedy's IMS product
offering in new and existing IMS users. In addition, Hu-Friedy's
strong presence in dental and hygiene schools represents a key
opportunity to cross-sell the Cantel consumables
portfolio.
Cantel expects the acquisition of Hu-Friedy to be accretive to
the Company's overall financial outlook. The transaction is
expected to be dilutive to GAAP earnings per diluted share in
fiscal year 2020 due to acquisition-related costs, but is expected
to be accretive to GAAP earnings per diluted share in fiscal year
2021 and beyond. On a non-GAAP earnings basis, Cantel expects
the transaction to be approximately 10 percent accretive in its
fiscal year ended 2020, with mid-teens accretion in fiscal year
2021 and further accretion thereafter. The acquisition is also
expected to be accretive to margins at both the divisional and
Cantel levels. The Company expects the transaction to exceed its
cost of capital by the fourth year after closing.
The cash portion of the transaction is being financed through a
combination of the net proceeds of the Company's amended and
restated credit facility, new term loan financing and cash on hand.
Cantel anticipates that the Company's enhanced financial profile
and scale following closing of the transaction will enable strong
cash flow generation and accelerated deleveraging.
The transaction has been approved by the boards of directors of
both companies and is expected to close in the first quarter of
Cantel's fiscal year 2020, subject to regulatory approvals and
other customary closing conditions.
Advisors
Perella Weinberg Partners LP served as financial advisor to
Cantel and Wachtell, Lipton, Rosen & Katz served as its legal
advisor. Moelis & Company LLC served as financial advisor to
Hu-Friedy and Latham & Watkins LLP served as its legal
advisor.
Investor Call Details
The Company will hold a conference call to discuss the
acquisition today at 8:30 a.m. Eastern
Time. To participate in the conference call, dial
1-877-407-8033 (US & Canada)
or 1-201-689-8033 (International) approximately 5 to 10 minutes
before the beginning of the call. If you are unable to participate,
a digital replay of the call will be available from Tuesday, July 30, 2019 through midnight on
August 30, 2019 by dialing
1-877-481-4010 (US & Canada)
or 1-919-882-2331 (International) and using conference ID#:
51716.
An audio webcast will be available via the Cantel website at
www.cantelmedical.com. A replay of the presentation will be
archived on the Cantel website for those unable to listen live. In
addition, the Company will provide a supplemental presentation to
complement the conference call. The presentation can be accessed on
the Cantel website in the Investor Relations section under
presentations.
About Cantel
Cantel is a leading global company dedicated to delivering
innovative infection prevention products and services for patients,
caregivers, and other healthcare providers, which improve outcomes,
enhance safety and help save lives. The Company's products include
specialized medical device reprocessing systems for endoscopy and
renal dialysis, advanced water purification equipment, sterilants,
disinfectants and cleaners, sterility assurance monitoring products
for hospitals and dental clinics, disposable infection control
products primarily for dental and GI endoscopy markets, dialysate
concentrates, hollow fiber membrane filtration and separation
products. Additionally, Cantel provides technical service for its
products.
For further information, visit www.cantelmedical.com.
About Hu-Friedy
Founded in Chicago in 1908 by
Hugo Friedman, Hu-Friedy Mfg. Co.,
LLC is a global leading manufacturer of dental instruments, and
provider of instrument reprocessing workflow systems, that has
served the dental industry for over 111 years. Acquired in 1959 by
Dick Saslow and the Saslow family,
and currently led by Chairman and CEO Ron
Saslow, Hu-Friedy helps dental professionals perform at
their best by producing dental instruments, infection
prevention solutions and unique customer experiences designed to
function as an extension of each practitioner's skill. Its
instruments, hand-crafted by highly-skilled artisans, are known for
their precision, performance, quality and for the essential role
they play in the overall journey from student to practitioner.
Headquartered in Chicago,
Hu-Friedy products are distributed in more than 100 countries and
the company maintains offices in Germany, Italy, China
and Japan.
For further information, visit www.hu-friedy.com.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains "forward-looking statements" as that
term is defined under the Private Securities Litigation Reform Act
of 1995 and other securities laws. For these statements, we claim
the protection of the safe harbor for forward-looking statements
contained in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These statements are
based on current expectations, estimates, or forecasts about our
businesses, the industries in which we operate, and the current
beliefs and assumptions of management; they do not relate strictly
to historical or current facts. Without limiting the foregoing,
words or phrases such as "expect," "anticipate," "goal," "project,"
"intend," "plan," "believe," "seek," "may," "could," "enable," and
"opportunity" and variations of such words and similar expressions
generally identify forward-looking statements. In addition, any
statements that refer to predictions or projections of our future
financial performance, anticipated growth and trends in our
businesses, and other characterizations of future events or
circumstances are forward-looking statements. These forward-looking
statements include, among other things, statements regarding our
expected net sales; synergies; tax benefits; GAAP, operational and
organic revenue growth rates; GAAP earnings and adjusted earnings;
our financial performance; our business plans and our positioning
for revenue and earnings growth. In addition, risks and
uncertainties associated with these forward-looking statements
include the potential that we may not be able to consummate the
acquisition, or that the expected benefits (including tax benefits)
and opportunities of the acquisition may not be realized or may
take longer to realize than expected, or that required regulatory
approvals may not be obtained as quickly as expected, or at all.
There are also risks and uncertainties related to the ability of
Cantel to successfully integrate the technology, operations and
employees of Hu-Friedy, as well as the ability of Cantel to
continue to successfully operate Hu-Friedy during the time periods
necessary to realize the benefits (including synergies and tax
benefits) described. If our underlying assumptions turn out to be
incorrect, or if certain risks or uncertainties materialize, actual
results could vary materially from the expectations and projections
expressed or implied by our forward-looking
statements. Readers are cautioned that these forward-looking
statements are only predictions about future events, activities or
developments and are subject to numerous risks, uncertainties, and
assumptions that are difficult to predict. We caution that undue
reliance should not be placed on such forward-looking statements,
which speak only as of the date made. Some of the factors
which could cause results to differ from those expressed in any
forward-looking statement are set forth under Item 1A of our Annual
Report on Form 10-K, entitled Risk Factors. We expressly
disclaim any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained
herein to reflect any change in our expectations with regard
thereto or any change in events, conditions or circumstances on
which any such statement is based. This cautionary statement is
applicable to all forward-looking statements contained in this
press release.
Supplementary Information – Reconciliation of GAAP to
Non-GAAP Financial Measures
In evaluating Hu-Friedy's historical operating performance,
Cantel Medical has supplemented the reporting of Hu-Friedy's
financial information determined under generally accepted
accounting principles in the United
States ("GAAP") with certain non-GAAP financial measures
including, (i) earnings before interest, taxes, depreciation and
amortization ("EBITDA") and (ii) adjusted EBITDA. These non-GAAP
financial measures are indicators of Hu-Friedy's historical
performance that are not required by, or presented in accordance
with, GAAP. Cantel Medical believes that EBITDA is an important
valuation measurement for management and investors given the
increasing effect that non-cash charges, amortization related to
acquisitions and depreciation of capital equipment, has on net
income. Additionally, Cantel Medical regards EBITDA as a useful
measure of operating performance before the effect of interest
expense and is a complement to operating income, net income and
other GAAP financial performance measures. Adjusted EBITDA related
to the historical operating performance of Hu-Friedy is defined as
EBITDA excluding certain adjustments to net income as described
below. Cantel Medical believes that Adjusted EBITDA is useful when
evaluating the operating performance of Hu-Friedy because the
exclusion of such adjustments provides a clear measure of on-going
core operating results and when evaluating comparative results
period over period.
The reconciliations of net income to EBITDA and Adjusted
EBITDA for Hu-Friedy were calculated as follows:
|
|
LTM
|
|
|
5/31/2019
|
(amounts in
millions)
|
|
(unaudited)
|
Net Income
|
|
$28.7
|
Income tax
|
|
2.4
|
Interest
expense
|
|
3.2
|
Depreciation
|
|
4.0
|
Amortization
|
|
1.1
|
EBITDA
|
|
$39.5
|
Non-recurring
adjustments (1)
|
|
8.4
|
Adjusted
EBITDA
|
|
$47.9
|
|
|
|
|
|
|
LTM = Last Twelve
Months
|
|
|
(1) Non-recurring
adjustments include compensation and benefit related costs incurred
by Hu-Friedy that are not expected to be incurred post-acquisition
as a result of respective synergies that are expected to be
realized.
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SOURCE Cantel Medical Corp.