Cantel Medical to Acquire Hu-Friedy for $725 Million to Deliver Comprehensive Infection Prevention and Instrument Management Solutions for Dental Professionals

On July 31, 2019, VCBeat (WeChat ID: vcbeat) learned that Cantel Medical Corporation, a provider of instrument reprocessing, infection prevention products and services, announced today that it had entered into a definitive agreement to acquire the privately held company Hu-Friedy Mfg. Co., LLC. Hu-Friedy is a global manufacturer of instruments and instrument post-processing workflow systems with a 111-year history, serving the dental industry. This acquisition creates a comprehensive provider of infection prevention, instrument, and instrument management solutions, designed to meet dentists’ needs for excellent clinical performance and best-in-class infection prevention practices.

Cantel will acquire Hu-Friedy for $725 million in upfront cash and stock consideration, with up to $50 million in earn-out payments payable in cash and stock. The earn-out is contingent upon achieving commercial milestones within the first 18 months following the closing of the transaction. The transaction structure is expected to result in tax benefits for Cantel valued at over $100 million, leading to a net upfront purchase price of $625 million, and a total potential purchase price of approximately $675 million including the potential earn-out payments.

The company will hold a conference call at 8:30 a.m. Eastern Time this morning to discuss the acquisition. Details of the conference call are as follows:PutHu-FriedyLeadership in Dental Instruments and Instrument Management Systems, andCantelcombined with leading dental infection prevention consumables,Effectively advancedCantel’s strategy—to become a global leading provider of innovative infection prevention and reprocessing workflow solutions, as well as education for its key end markets.As of2019Year5Month31twelve-month period ending on the day,Hu-FriedyCreated approximately2.14billion U.S. dollars in revenue, adjustedEBITDAapproximately4800USD 10,000.

George Fotiades, President and Chief Executive Officer of Cantel, stated: “The merger of our two dental companies provides us with a clear and direct opportunity to become the leading provider of the ‘complete circle of protection’ in the dental industry, delivering services for medical device reprocessing, infection prevention, and compliance solutions. By integrating our highly complementary dental product portfolios, we will create a unique business position that addresses customers’ most critical workflow needs while improving patient care. Hu-Friedy brings scale, commercial capabilities, and a portfolio that make our dental business a significant driver of Cantel’s long-term profitable growth.”

Ron Saslow, Chairman and CEO of Hu-Friedy, stated, “We are delighted to join forces with Cantel and look forward to the transformative impact this merger will have on our customers, employees, and other stakeholders. As a leader in dental instrumentation and instrument management solutions, Hu-Friedy’s combination with Cantel, a leading provider of infection prevention consumables for dentistry, creates a perfect synergy that will further enhance our ability to serve dental professionals.”

Hu-Friedy has established a leading position in the dental instrument and Instrument Management Systems (IMS) sector, with 90% of its brand portfolio achieving nearly 100% brand awareness among dentists and dental hygienists. Hu-Friedy boasts a large and mature sales and customer service team, supported by a robust marketing organization that leverages industry-leading data analytics. This will enhance Cantel’s commercial and customer engagement capabilities in the dental industry, driving long-term growth. Furthermore, Hu-Friedy offers advanced educational and training products and enjoys a strong reputation in dental schools, maintaining long-standing communication with key school administrators. This will enable the merged entity to provide differentiated educational solutions, thereby serving the foundational needs of the dental industry.

The combined dental business will be led by Hu-Friedy President Ron Saslow and Ken Serota. Since the acquisition of Crosstex, Gary Steinberg has successfully established Cantel’s dental division. He will assist with the transition and integration of the two businesses and will retire at the end of this year.

The acquisition is also expected to unlock significant potential for accelerating revenue growth. Cantel aims to realize potential revenue synergies by integrating Crosstex’s premier infection prevention consumables with Hu-Friedy’s IMS offerings among both new and existing IMS users. Furthermore, Hu-Friedy’s strong presence in dental and hygiene schools presents a substantial opportunity for cross-selling Cantel’s consumer product portfolio.

Cantel anticipates that the acquisition of Hu-Friedy will benefit the company’s overall financial outlook. Due to acquisition-related costs, the transaction is expected to dilute GAAP diluted earnings per share (EPS) in fiscal year 2020, but is projected to increase GAAP diluted EPS in fiscal year 2021 and thereafter. On a non-GAAP basis, Cantel expects the transaction to contribute approximately a 10% increase in the fiscal year ending 2020, with accretion beginning in the middle of fiscal 2021 and further increasing thereafter. The acquisition is also expected to enhance profit margins at both the segment and corporate levels. The company expects the transaction to exceed its cost of capital by the fourth year following completion.

The cash portion of the transaction was financed through a combination of net proceeds from the Company’s amended and restated credit facility, new term loan facilities, and cash on hand. Cantel expects that the Company’s financial position and scale will improve following the closing of the transaction, resulting in strong cash flow generation and accelerated deleveraging.

The transaction has been approved by the boards of directors of both companies and is expected to be completed in the first quarter of Cantel’s fiscal year 2020, subject to regulatory approvals and other customary closing conditions.

Hu-Friedy, founded in 1908, has become a global leader in the manufacturing of dental instruments. Committed to providing the highest quality products, services, and community experiences to the dental industry, Hu-Friedy helps dental professionals perform at their best. Headquartered in Chicago, Hu-Friedy maintains offices and distribution centers in the Netherlands, Italy, Germany, China, and Japan, with a sales presence in more than 30 countries.

Cantel Medical is dedicated to providing innovative infection prevention products and services for patients, caregivers, and other healthcare providers to improve outcomes, enhance safety, and help save lives. Its product portfolio includes specialized medical device reprocessing systems for endoscopy and renal dialysis, advanced water purification equipment, disinfectants and cleaners, sterile assurance monitoring products for hospitals and dental clinics, single-use infection control products primarily for the dental and gastrointestinal endoscopy markets, dialysate concentrates, and hollow fiber membrane filtration and separation products.

(Compiled by Tian Shuhang)