Hospira announced yesterday that it will make its first acquisition. The firm plans to pay $23 million in cash and assume $1 million in debt to purchase Physiometrix
Still, just because Hospira has cash to spare doesn't mean it should rush to spend it. Physiometrix's loss from operations was $5.4 million in 2004 on revenue of $1.9 million. Although Physiometrix's market share in the anesthesia monitoring space has grown impressively so that it now stands at 20%, Hospira's offer of 12 times trailing revenue seems pretty steep given the small firm's losses.
However, the purchase likely has more to do with Hospira's generic anesthesia segment than Physiometrix's attractiveness as a standalone firm. Physiometrix's products are currently sold under contract by Hospira rival Baxter
Hospira already competes with Baxter in anesthesia sales and could soon try to market a generic version of propofol, a difficult-to-make anesthetic whose only generic manufacturer currently is Baxter. As it steps up its own anesthesia efforts, Hospira is probably hoping synergies with Physiometrix's products will give it an edge over its longtime competitor.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.