Synergy Health: a lesson in the perils of M&A fever
2015 has been a stellar year for M&A fans; seemingly every day a serious merger or acquisition is being considered, composed or completed.
Shell and BG, Playtech and Plus500, Intel and Altera, Bwin and GVC or 888, Zoopla and uSwitch: this is a small selection of the deals that have been floated or confirmed in 2015. In fact, May saw a monthly record in US deal-making, as the worth of M&A activity hit $243 billion.
In among all the heavy-hitting M&A sits healthcare. Regardless of the ethics of pharmaceutical giants, they are big players in the M&A realm, hoovering up smaller companies in order to boost their pipelines.
Yet one of the most recent, and high profile, M&A cases in the healthcare sector shows the perils of the feverish activity that has gone on the past couple of years. Synergy Health (SYR), a Swindon-based company that is known for its sterilisation services, was trading at round £15 on a good day back in October 2014. Since the start of 2007, when Synergy Health was trading at around £4.26, the company has posted very steady market growth, increasing by just over £10 in seven and a half years.
However, the news that Steris Corporation – a US company that describes itself as ‘a global leader in infection prevention, contamination control, surgical and critical care technologies, and more’ – was to purchase Synergy for $1.9 billion (around £1.2 billion) sent the UK stock soaring, by as much as 31% on the day of the announcement alone.
Flash to the middle of April, and Synergy was trading at a high of £24.17; that means the company had gained the same amount in 6 months as it had done in the previous seven and a half years. Yet the news at the end of May that the Federal Trade Commission wasn’t too pleased about the deal between Steris and Synergy sent the latter’s stock tumbling, going from £22.70 on May 26th to a low of £16.61 on the 28th.
The reason behind the FTC’s displeasure was the tax-dodging motives of Steris Corp. By moving its operation to the UK, Steris would see cost savings of roughly $30 million a year after the acquisition due to the lower rates of corporate tax in Britain, a trend that is obviously unpopular with US authorities. The FTC also claimed that the deal would violate antitrust laws for the very specific ‘regional markets for sterilization of products using radiation’.
Synergy’s woes were compounded with its full year results. After seeing impressive 13% pre-tax profit growth in its fiscal 2013, 2014 brought with it a mere 1.6% increase. Despite revenue growing by 7.5%, these results aren’t exactly those of a company which was supposedly worth enough to equal 10 years growth in six months.
Now, this could all work out fine. Steris and Synergy could successfully challenge the FTC, complete the deal and ride off into the sunset. However, Synergy is one of the more extreme examples of the rollercoaster ride that an M&A journey can be – an example that highlights reservations investors should have over the price-inflating reasons behind rumoured deals.
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