Baxter Expands its Biosurgery Business with Synovis Purchase

‘Tis the season to be…shopping…

And in the true spirit of the season, Baxter International Inc. is spending some big bucks on a lavish holiday gift to itself: The company is buying Synovis Life Technologies Inc. for $325 million to acquire its line of soft-tissue repair products.

Synovis stockholders will receive $28 per share in the deal, a figure that is 52 percent more than the closing stock price of St. Paul, Minnesota-based Synovis on Dec. 12. The merger is valued at $260 million after adjusting for the company’s net cash, Baxter executives said in a statement released on Dec. 13. The Synovis board of directors already has approved the deal.

The acquisition should be completed in the first quarter of 2012 and is likely to reduce full-year earnings for Baxter next year by about 4 cents per share, according to the companies. Though it will have little or no effect on 2013 earnings, Baxter expects the purchase to be “increasingly accretive” the following year and beyond as it attempts to infiltrate the regenerative medicine market with an expanded product line. Baxter bigwigs said the deal would help the company expand its offering of biosurgery products and provide surgeons with a “more complete line of tools to treat patients.”

With $68.6 million in 2010 sales, Synovis is considered a niche player in the biosurgery/regenerative medicine market. But its product lineup—including Peri-Strips Dry, Tissue-Guard and Veritas Collagen Matrix—made it an attractive target for acquisition by a conglomerate such as Baxter, which (like other medical device OEMs) has been trying to diversify its offerings and enter markets that seemed poised for future growth. “Baxter is continuing to broaden its offerings with these tuck-in acquisitions,” Michael Matson, an analyst with Mizuho Securities USA Inc. in New York, N.Y., told Bloomberg. “It [Synovis] seems to fit well with their [Baxter’s] regenerative medicine business, extending into the soft tissue area. It’s a small company, kind of a niche player, and it does make sense.”

Total sense, particularly since Synovis’ device businesses include Synovis Surgical Innovations (SSI), Synovis Micro Companies Alliance (SMCA) and Synovis Orthopedic and Woundcare (SOWC). SSI develops implantable biomaterials and surgical tools, while SMCA makes products for the microsurgery market (the Coupler, Flow Coupler and Gem Microclip are prime examples—the products are used for joining small diameter vessels during autologous tissue breast reconstruction; sealing small blood vessels; and head neck and hand procedures). SOWC develops biologic solutions for orthopedic soft tissue repair and advanced wound care.

Baxter’s lineup of biosurgery products includes bone graft substitute Actifuse, an adhesion reduction solution called Adept, an absorbable fibrin sealant patch (TachoSil), and the surgical sealant Coseal.

“We are enthusiastic about this transaction not only because it is beneficial to our shareholders and employees,” Synovis President and CEO Richard Kramp said, “but also because the combination of Baxter’s and Synovis’ product portfolios will greatly expand the combined entity’s presence in the expanding soft tissue repair market, benefiting patients worldwide.”

Such an expansion could take a while, though. Matson told Bloomberg the acquisition will act as a trade-off for Baxter—short-term dilution for longer-term growth. “It’s not going to move the needle in the near term, but these are big markets and could add meaningful revenue years down the road,” he noted.