On Monday, contract manufacturer Jabil Circuit announced that it has entered into an agreement to buy Clinton, Mass.-based Nypro for $665 million.
Nypro specializes in the manufacture of precision plastic products for the health care, packaging, and consumer electronics industries. According to Jabil, acquiring the company will both help Jabil expand into the health-care and consumer packaging markets, while also adding "depth" to its consumer electronics business.
Of course, this expansion comes at a cost. Even with its $1 billion-plus annual revenues, Nypro is still selling for a price-to-sales ratio of roughly 0.66. That's about three times the 0.22 P/S valuation that Jabil's own shares command.
Still, Jabil seems to think it's worth the price. As incoming Jabil President Bill Peters noted, "The rigid plastic packaging market is a $140 billion addressable market globally." At present, Nypro's only getting a small sliver of that business. But according to Peters, Jabil is "excited about aggressively pursuing this market on a global basis and look forward to working with the talented people within Nypro."
In the immediate future, meanwhile, Jabil says the Nypro purchase should be "neutral to slightly accretive to Jabil's core earnings per share for the balance of fiscal 2013 and accretive to earnings per share on both a core and GAAP basis in fiscal 2014."
Nonetheless, investors bid down Jabil shares on the news. Shares fell 0.6% Monday to close at $19.24.
The article Jabil to Pay $665 Million for Nypro originally appeared on Fool.com.Fool contributor Rich Smith and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.