Ecolab to Buy O.R. Solutions - Analyst Blog

Leading cleaning and sanitation products company Ecolab Inc (ECL) continues with its acquisition spree. It has agreed to acquire Virginia-based privately-held O.R. Solutions for $260 million in cash. The completion of the transaction is contingent upon regulatory approvals and customary closing conditions.

O.R. Solutions develops and markets fluid warming and cooling systems (including custom-fit sterile drapes) that are designed to maintain the proper temperature of fluids used during surgeries such as cardiac procedures and transplants. These systems help warm and cool fluids to prevent infections and maintain tissue health, respectively, during these procedures. O.R. Solutions recorded annual sales of roughly $55 million.

The deal enables Ecolab to broaden its U.S. health care business and strengthens its infection prevention solutions. The company expects the acquisition to be accretive to its 2011 earnings. Ecolab has not divulged any specific timeline for the completion of the deal.  

Ecolab caters services and products to the hospitality, foodservice, institutional and industrial markets. It leads in cleaning, sanitizing, pest elimination and food safety solutions with revenues of $6 billion.

To drive growth, Ecolab continues to invest in strategic areas such as, product innovation, health care, water and energy and global pest elimination while rationalizing operating costs. The company remains focused on introducing new technologies that can help in providing safe food.

In a move to broaden its Asia-Pacific reach, Ecolab agreed to acquire Australian cleaning and hygiene products maker Cleantec in September 2010. Moreover, Ecolab acquired the commercial laundry business of Illinois-based privately-held Dober Chemical, which boosted its North American commercial laundry operation.

The resurgent food services market across the U.S. and Europe is expected to support Ecolab's operating results moving forward. The company stands to benefit from the uptick in hotel lodging demand and favorable market trends across food and beverage, and healthcare segments.

Although we are impressed by Ecolab's strong international exposure, we remain concerned about the intense competition. The company's U.S. Cleaning & Sanitizing and International divisions face stiff competition from Clorox (CLX) and Church & Dwight (CHD). Moreover, Ecolab's aggressive acquisition strategy has inherent integration risks. We currently have a Neutral recommendation on Ecolab, which is supported by a Zacks #3 Rank (Hold).