Stryker to Buy Medical Supplier Sage for $2.78 Billion

  • Adds surgical items that help prevent operations complications
  • Sage purchase comes with $500 million tax benefit for Stryker

Stryker Corp., a maker of medical devices including artificial hips and knees, agreed to buy Sage Products LLC for $2.78 billion in cash to add a complementary group of surgical items that help prevent infections acquired in hospitals.

The purchase will come with a $500 million tax benefit for Kalamazoo, Michigan-based Stryker, the company said in a statement on Monday. Stryker is buying Sage from private equity firm Madison Dearborn Partners.

With the deal, Stryker, whose biggest business is orthopedic devices used in replacement surgery, is gaining products including ones meant to reduce “never events,” such as operations on the wrong leg. Sage, based in Cary, Illinois, had sales of $430 million in fiscal 2015, compared with $9.95 billion for Stryker.

Madison Dearborn will reap nearly a 320 percent gain in the sale, a person familiar with the matter said. The Chicago buyout firm, which invested $350 million in Sage three years ago, will garner close to $1.5 billion from the sale and a dividend from Sage in 2014, the person said.

Kate Schneiderman, a Madison Dearborn spokeswoman at Abernathy McGregor, declined to comment.

Facing pressure from hospitals and purchasing groups that are trying to control costs, medical device companies have been consolidating to offer a wider range of products. More than 590 deals worth about $82 billion were announced or completed in the sector over the past year, according to data compiled by Bloomberg. Abbott Laboratories, the maker of heart stents, said Monday it’s buying diagnostic testing device maker Alere Inc. for $5.8 billion, and last year Medtronic Plc completed a $46 billion deal for Covidien Ltd.

The Sage deal is expected to close in the second quarter. Stryker said it will add 5 cents to its adjusted earnings for 2016, which the company predicts will be $5.55 to $5.75 a share.

Stryker was down 0.44 percent to $98.73 at 2 p.m. in New York.

JPMorgan Chase & Co. served as Stryker’s financial adviser, and Sullivan & Cromwell as legal adviser. Sage was advised by Barclays, and by the law firms Kirkland & Ellis and Madden, Jiganti, Moore & Sinars.

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