ResMed buys motor company

Strengthening its foothold in the US, ResMed has acquired the Californian manufacturing company, Servo Magnetics Inc (SMI) for about $US32 million ($58.38 million).

SMI has been ResMed's supplier of motors since October 1997. The US company, which in 2001 brought in a revenue of $US15 million, designs, manufactures and distributes electric motors used in ResMed's flow generator systems, as well as in the aerospace and data storage industries.

ResMed's chairman and CEO, Dr Peter Farrell, said the acquisition would provide a reliable, cost-effective source of supply for one of the most critical and expensive components of ResMed's medical products.

The acquisition was funded through a combination of cash and restricted ResMed common stock to qualify as a tax-free reorganisation under US tax law.

Assirt Equities analyst Chris Kallos said ResMed's rationale was solid and the acquisition was a good deal which locked in the component supplier and potentially enhanced new product development.

Currently more than half of SMI's sales have been to ResMed.

"SMI has certain R&D skills that look attractive and there could be some collaboration in new product development, designing better motors that fit generators more effectively," Kallos said.

The acquisition, excluding transaction costs, is expected to be non-dilutive during the remainder of ResMed's fiscal year ending June 30, 2002, and accretive thereafter according to the ASX statement. "It is not clear how ResMed will redesign the management team," Kallos said.

Farrell is based in San Diego, in close vicinity of SMI, indicating the potential for close collaboration.