Consort Medical’s (CSRT) proposed acquisition of Carclo (CAR) is unusual for two reasons. Firstly, the target only generates 61 per cent of its revenues from medical devices – it’s other two divisions have nothing in common with Consort’s businesses. Secondly, the highly cash-generative group is offering shares in exchange for Carclo – historically it has raised cash from equity or debt to fund acquisitions.
But we can also see why the deal makes sense. Carclo’s Technical Plastics division would slot nicely into Consort’s medical devices business to help broaden its product suite and geographical reach. The group has previously said it may need to make acquisitions to compete with its larger peers in the highly fragmented medical devices market. As for Carclo’s other two divisions (LED and Aerospace), Consort’s management would consider selling them off to help repay some of its debt.
The timing of the bid also seems sensible following Carclo’s major profit warning and share price collapse earlier in the year. But that may be why management at the target have been hesitant to engage with Consort – at 116p, Consort’s current offer is below Carclo’s pre-profit warning share price in early January.
