Shares of Greatbatch, Inc. GB surged almost 14.4% to close at $57.06 on Aug 28, following its agreement to acquire Lake Region Medical. The stock also reached a 52-week high of $58.35 on the same day.
On Aug 27, Greatbatch announced the signing of a definitive agreement to buy privately owned Lake Region Medical for about $1.73 billion in cash and stock. The transaction is expected to close in the fourth quarter of 2015.
The deal is expected to significantly boost the combined company’s product portfolio which will allow it to operate on a much larger scale across different geographies. Meanwhile, the joint entity is likely to employ more than 9,000 individuals worldwide. The merged company will operate in the U.S., Latin America, Europe and Asia Pacific.
The transaction is expected to help the joint company offer a wide-ranging assortment of solutions and services to its original equipment manufacturer (OEM) customers. Additionally, it is expected to diversify Greatbatch’s operations into the advanced surgical, vascular and interventional cardiology market.
The acquisition is also anticipated to provide significant operating synergies, which will, in turn, boost earnings. In fact, management at Greatbatch expects the acquisition to help adjusted earnings per share achieve double-digit growth rate in 2016. Following that, it is expected to be even more accretive. Additionally, net annual synergy for operating profit is expected to be $25 million in 2016 and increase to at least $60 million by 2018. The combined company is also poised to generate significant cash flow.
We believe that this strategic buyout will help Greatbatch significantly increase its customer base, which will help boost sales. Notably, the company has been following a strategy of acquiring complementary businesses that help to add new proprietary technologies, manufacturing capabilities and development resources. The acquisition of CCC Medical in Aug 2014, in particular, has greatly enhanced the company’s medical device innovation efforts. The integration of CCC Medical Devices capabilities and customers into the organization is well on track and is expected to prove accretive, going forward.
Currently, Greatbatch sports a Zacks Rank #1 (Strong Buy).
Other Stocks To Consider
Other well-placed stocks in the medical sector include Masimo MASI, Thoratec THOR and NuVasive NUVA. Both the stocks sport a Zacks Rank #1.
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