Cantel Medical Corp (CMN) is presently focusing on growing inorganically. As part of its strategy, the company recently acquired water purification and treatment service provider Pure Water Solutions for $11.9 million in cash. The deal is expected to prove slightly accretive to Cantel Medical’s fiscal 2015 non-GAAP earnings and fiscal 2016 results.
Pure Water Solutions will be integrated into Cantel Medical’s Mar Cor Purification division, which is one of the largest suppliers of dialysis medical water systems in North America. The acquisition not only expands Cantel Medical’s product portfolio but also improves the company's penetration into the southeast part of United States.
Over the years, acquisitions have been a key growth catalyst for Cantel Medical. In 2014, the company acquired International Medical Service (IMS), PuriCore International and Sterilator Company. In the recently concluded first quarter of fiscal 2015, acquisitions accounted for almost 6% of sales growth.
The acquisitions of IMS business in Italy (Nov 2014) and Puricore International (Jul 2014) – which was renamed Cantel Medical (UK) Limited – is expected to boost Cantel Medical’s international presence.
Both the acquisitions were integrated into Cantel Medical’s Endoscopy segment that surged 28% (13% organic) year over year in the first quarter. Cantel Medical (UK) Limited contributed $6.5 million to sales in the first-quarter results.
The addition of the Pure Water Solutions business to the Water Purification and Filtration (Mar Cor) segment will drive top-line growth in the near term. Over the trailing 12 months, Pure Water Solutions generated revenues of $8 million and earnings before interest, tax, depreciation & amortization (EBITDA) of $2 million.
We believe that Cantel Medical will continue to pursue strategic acquisitions that are complementary to its overall portfolio. The resultant strong product-line will help the company to continue its international expansion as well as gain domestic market share in 2015 and beyond.
We believe that strong market share gain will help Cantel Medical achieve its growth target. The company plans to double sales and profits in the next five year. In order to achieve it, the company is significantly investing in sales & marketing in the U.S. as well as in Germany, China, United Kingdom and Italy.
Although rising operating expenses and increasing integration risks are concerns, we believe that continuing investments in new products and strategic acquisitions will improve Cantel Medical’s competitive position against the likes of Fresenius Medical Care (FMS), DENTSPLY International (XRAY) and Ecolab (ECL).
Currently, Fresenius Medical retains a Zacks Rank #2 (Buy), while both DENTSPLY and Ecolab carry a Zacks Rank #3 (Hold).
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