Medline has set its sights on acquiring a significant portion of Teleflex’s respiratory business. The transaction is for about $286 million in cash reduced by $12 million in working capital not transferring to Northfield, IL-based Medline. Both companies are looking to close the deal in early 3Q21.
The Teleflex respiratory product lines that will be divested fall under the Hudson RCI brand and include oxygen and aerosol therapy, active humidification, non-invasive ventilation, and incentive spirometers. Teleflex said the product lines generated $139 million in revenue in 2020.
“Hudson RCI is a natural addition to Medline,” Andy Mills, President of Medline, said in a release. “Medline has a long history of investing in key market areas to deliver new opportunities and efficiencies to healthcare providers. The acquisition brings one of the most admired respiratory brands into our world-class portfolio of products.”
The Hudson RCI corporate and manufacturing teams will become part of Medline’s Respiratory division, reporting up to division president Tim Finnigan through division vice president Donna Mosakowski. In the U.S., more than 30 sales specialists and clinical specialists will join the Acute Care Specialty Sales group, reporting to Patrick Griffin, vice president of National Field Sales.
Teleflex said it plans to use the divestiture proceeds to pay down debt to support its growth strategy.
“Following a comprehensive review of our strategy and core capabilities, our Board of Directors and management team decided that divesting a significant portion of our Respiratory business will enable Teleflex to focus further on executing in our core market segments to drive long-term sustainable growth and increase shareholder value,” Liam Kelly, Chairman, President and CEO of Teleflex, said in a release. “We expect the proceeds from the divestiture of this business, along with our ability to continue to generate cash from operations, to help us on our journey to execute our strategic plan.”
Mike Matson, an analyst with Needham & Company, commented on the transaction price.”
“Teleflex is receiving ~2xthe sales for the sale which we think is reasonable considering that the business wasn't growing, and we have seen similar businesses sold for as little as ~1x sales,” Matson wrote in a research note. “ In retrospect, we believe that this deal helps to explain why management only raised its 2021 earnings per share guidance by 15 cents despite beating 1Q21 consensus by 45 cents. We estimate that the deal will increase Teleflex’s revenue growth by ~40 bps and modestly increase its gross and operating margins.”