Hill-Rom has struck a deal to divest scalpels and certain other surgical consumable products to a private equity group for $170 million in cash.
The transaction will free Hill-Rom of a stagnant business and its 500 employees, giving it more cash to spend on acquisitions or stock repurchases.
Hill-Rom is working to position its portfolio for sustained growth by exiting some businesses while investing in emerging opportunities.
When Hill-Rom set its outlook for 2020 a couple of years ago, it separated non-core assets with sales of $100 million a year and earmarked them for divestiture. Since then, Hill-Rom has offloaded a third-party rental business that generated annual sales of $35 million and acquired mobile healthcare communications company Voalte for $180 million.
Following those transactions, Hill-Rom CEO John Groetelaars told investors the company continues "to actively divest and wind down lower growth and lower margin non-core businesses" and search for takeover opportunities.
Hill-Rom advanced one part of that strategy this week through an agreement with an affiliate of Audax Private Equity. The affiliate of the private equity group is set to pay $170 million to acquire surgical consumable assets from Hill-Rom, including the Bard-Parker line of conventional and safety scalpels and blades.
The products are expected to generate sales of around $100 million this year. Full-year sales at the broader surgical solutions business totaled $458 million last year. Hill-Rom has previously expressed an interest in divesting parts of the business, including the international OEM unit.
Sales of the affected products have been flat at best, leading analysts at Needham to conclude the divestiture is a positive for Hill-Rom and its efforts to focus on its core, faster-growing assets.
"We believe the deal makes strategic and financial sense given that it allows [Hill-Rom] to focus on its core business, removes a core growth headwind and gives [Hill-Rom] optionality for capital deployment. We believe management is likely to use the proceeds for M&A," the analysts wrote in a note to investors.
In addition to the products, Audax will acquire around 500 employees from Hill-Rom, which had more than 10,000 staff at the last count. Audax has a track record of buying businesses and expanding them through M&A.