Svenska Cellulosa AB (SCA) has entered into an agreement to acquire Luxembourg, Germany-based BSN Medical Ltd. for about $2.9 billion. The Stockholm, Sweden-based company is acquiring BSN from private equity firm EQT, and the transaction is expected to close during 2Q17. The acquisition will give SCA access to the wound care market and will be fully debt funded.

The BSN Medical buy comes on the heels of SCA revealing it would split into two distinct companies – a global hygiene firm and forest products company. SCA said that a distribution and listing of its hygiene business will create more shareholder value and incur a relatively low transactional risk with low transaction costs. Its forest products unit will retain the SCA name.

"This is another step in the journey of the hygiene part of SCA," said Magnus Groth, president and CEO of SCA, during a conference call discussing the BSN acquisition. "We've been looking at the medical solutions market ever since 2011 as an opportunity for future growth."

BSN is home to such wound care product lines as Leukoplast, Cutimed, Jobst, Delta Cast, Delta Lite and Actimove, which are long established brand leaders in key markets, Groth said. BSN has a strong go-to-market and supply chain with sales in more than 140 countries and production in 11 countries. It also has about 6,000 employees and competes directly against companies like Berkshire, U.K.-based Convatec Group plc.

"While at first sight this looks to be an unusual diversification into health care from its core hygiene business, BSN and SCA's incontinence business have complementary features, as they both use the same distribution channels and there will be opportunities for mutual cross-selling," said Adam Kindreich, an analyst with Morningstar.

Kindreich said that BSN comes with some drawbacks that he viewed as potential opportunities.

"Emerging markets account for less than 20 percent of sales, vs. 32 percent at SCA," he said. "In addition, BSN has been underperforming relative to peers with 3 percent organic sales growth, vs. 4 percent for the industry, mainly due to negative mix. Some of BSN's categories are suffering from ongoing price pressure, similar to SCA's."

BSN reported net sales for 2015 of $891 million. The reported net sales for BSN for the first nine months of 2016 amounted to $652 million.

"BSN has been a very resilient business in good times and in bad, with a steady growth in both top line and in profits," Groth said.

SCA said it expects to realize annual synergies of at least $31.2 million with full effect three years after closing. These include sales synergies from accelerated growth from cross-selling of BSN products and SCA incontinence products as well as cost synergies primarily in supply chain and administration. Restructuring costs are expected to amount to about $10.4 million and are expected to be incurred in the first three years, following completion, SCA said.

BSN was founded 15 years ago as a joint venture by Germany's Beiersdorf and London-based Smith & Nephew plc. London's Montagu Private Equity acquired BSN in 2006 for about $1.1 billion and then sold it to EQT for $2 billion.

BSN's owner, EQT had been mulling over a sale of the company for quite some time. Earlier this month, it was reported that EQT was thinking of an initial public offering for BSN.

The sale of BSN is EQT's second exit from a health care business. In May, EQT agreed to sell Malmö, Sweden-based Atos Medical AB to Pai Europe for $884 million. EQT bought the voice box prosthesis company in 2011 from Nordic Capital, also a private equity firm.