Smith & Nephew back in the fray
THE INVESTMENT COLUMN
The share price has been all the more impressive given that in March Smith announced a £5.5m loss for 1994. Despite calls for the group to use its strong balance sheet to make a substantial acquisition, it is rightly wary after the disastrous purchase of Ioptex,which led to the £150m disposal loss that plunged it into the red. Yesterday, Smith announced a less-spectacular deal, but one more likely to make money.
Acufex is being acquired from American Home Products for £90m. The business is a world leader in the manufacture of hand-held surgical cutters, grasping devices and other equipment used in the fast-expanding area of keyhole surgery.
Based in Mansfield, Massachusetts, it neatly complements the nearby Dyonics subsidiary. Product overlap is said to be as little as 5 per cent and the deal should consolidate Smith's dominance in orthopaedic keyhole surgery, raising its world market share by 5 percentage points to 35 per cent.
The impact on the bottom line is likely to be less immediately impressive, adding operating profits of £4.5m and raising earnings growth by perhaps 1 percentage point two years out. But even with February's £29m acquisition of Homecraft and a number of recent smaller deals, gearing should not exceed 20 per cent by the year-end.
Despite that, the shares, up 0.5p to 175p yesterday, are up with events, standing on a prospective price/earnings ratio of over 15 assuming profits of £186m this year.
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