Steris to become British company after $1.9 billion Synergy Health deal

Steris, a Mentor, Ohio-based provider of medical equipment and workflow-management software, will technically become a British company after it acquires Synergy Health in a $1.9 billion deal—the biggest purchase Steris has ever made.

However, the medical equipment maker's Mentor office will continue to serve as the company's operational headquarters after Steris and Synergy become one company, and its management team will remain in Mentor.

But the company being formed to house the combined business, which is being called New Steris, will be based in the United Kingdom, a move intended to lower Steris' corporate tax rate. Synergy investors will own 30% of the new company, and Steris will pay them 19.50 pounds ($31.35) for each share they own in the English sterilization services company.The deal would be big news for Steris, which also offers workflow-managment software, even if the company wasn't planning a so-called “inversion” — a practice that has drawn criticism from politicians and pundits.

The New Steris will be a lot bigger than the old one. Steris, which has about 8,000 employees, is buying a company with 6,000 employees. Steris expects to generate $1.9 billion in sales during the fiscal year that ends on March 31, while Synergy generated $605 million during its most recent fiscal year.

The new company also will be much more geographically diverse, because much of Synergy's sales come from Europe while Steris is more concentrated in the United States.

Steris began talking to Synergy about the deal before the company's advisers mentioned the idea of doing an inversion, Steris CEO Walt Rosebrough said during a conference call with stock analysts. He said he's known Synergy CEO Richard Steeves for several years.

“I'm really glad we are finally able to make this happen,” Rosebrough said.

The deal also is expected to help Steris save at least $30 million annually before taxes are even factored in. The companies will save money by “optimizing global back-office infrastructure, leveraging best-demonstrated practices across plants, in-sourcing consumables, and eliminating redundant public company costs,” according to a news release announcing the deal.

Even so, several companies have exposed themselves to criticism by incorporating abroad. Among them is Eaton Corp., which technically moved its corporate headquarters from Beachwood to Ireland after the manufacturer acquired Cooper Industries. However, its largest office remains in Beachwood.

One of the biggest critics of inversion is U.S. Sen. Sherrod Brown. The Northeast Ohio Democrat accused Burger King of being un-American for a similar effort to become a Canadian company through the acquisition of Tim Horton's.

Yet inversion remains popular as U.S. companies seek to avoid paying corporate taxes to the federal government. The United States has one of the highest corporate tax rates in the world. U.S. companies that fall into the highest income bracket are required to pay 35% of their profits to the federal government, according to this table from KPMG, which estimates that the overall rate goes up to about 40% when state and local taxes are included. The corporate tax rate in the United Kingdom is 21%, and it will drop to 20% in April 2015, according to KPMG.

Steris said it expects that the new company will pay an effective tax rate of roughly 25%, beginning in the fiscal year that starts on April 1, 2015.

Steris' 10 current board members will be joined by Steeves, who is Synergy's CEO, and two members of Synergy's board. The deal is expected to close on March 31.

"Steris will technically become a British company after $1.9 billion Synergy Health PLC acquisition" originally appeared on the website of Crain's Cleveland Business.