Synergy Health trading statement & offer

Delivers a range of specialist outsourced services to healthcare providers and other clients concerned with health management. Such as hospital sterilisation services; applied sterilisation technologies for single-use medical devices; reusable surgical solutions for daily delivery of sterile reusable gowns and towels; clinical pathology, toxicology and microbiological services; chemical and microbiological analysis; linen management services for healthcare facilities and product solutions designed for infection prevention and control, patient hygiene, surgical procedures and wound care.  I have a holding in my growth portfolio (epic code: SYR)

Today Synergy Health issued a trading update for the six months to 28 September and details of a business combination with Steris Corporation (NYSE: STE).

 

The company's underlying trading was up 7.4% on a constant currency basis, with a strong performance from Applied Sterilisation Technologies with sales up 17.5%.  Reported revenues were £197.6m, up by 2.9%, being affected by £8.8m of adverse currency translation effects. Management stated that performance was in line with expectations.

 

Net debt during the period increased from £147.6m at 30 March 2014 to circa £172m on 28 September 2014, principally as a result of the ~£23.6m Bioster Group acquisition which completed in May 2014.

The trading update was overshadowed by the announcement of an agreement to combine Synergy Health and Steris Corporation of the US.

 

Under the terms of the Combination, SYR shareholders will be entitled to receive £4.39 in cash and 0.4308 New STERIS Shares, representing a value of £19.50 per Synergy Share.  A 39% increase on SYR's closing SP on Friday of £14.00 and a very full price at 35x historic earnings and 26x expected earnings for this year.

 

The SP rose 31.4% today to 1840p and  STE in New York was down marginally at $56.37.  Interestingly in a tax inversion scheme STE will be moving its HQ to the UK and reducing its current US 35% tax rate to 25%.  This currently is a political "hot potato" and comes with some execution risk, as the US Treasury Department has threatened to introduce new rules to limit the use of tax inversion schemes.

 

There are no plans to list Steris on the London market, so UK shareholders have to decide whether they wish to hold a US stock or sell in the market before the deal completes, currently the SP is ~5% below the total being offered.  I am inclined to sell in the market before completion.