ST. PETERSBURG, FL -- Jabil Circuit will acquire the manufacturing arm of Varian Inc. for $195 million, the company said today.

Jabil, a Tier 1 EMS company, will buy Varian Electronics Manufacturing, in a deal expected to close in early March. The Varian EMS unit has annual sales of about $200 million.

At $195 million, Jabil will pay six to seven times Varian's EBITA. Jabil will also inherit about $35 million to $40 million in inventory.

About 85% of Varian's manufacturing business is contract work for medical, communications, industrial and aerospace. Varian will remain a customer, said Tim Main, president and CEO of Jabil, on a conference call Monday.

Medical makes up 40% of Varian's sales, aerospace 15%, instruments 35% and communications 10%. In a press statement, Main said: "This acquisition expands our commitment and delivers on our promise to provide the market leading solution to customers in highly specialized and rapidly growing markets. Customer requirements in these markets are truly unique and this acquisition will give us greater depth and competency to serve customers and expand our business in these sectors."

Varian has three EMS sites including a 200,000 sq. ft. operation in Arizona and two small leased sites in California. The vast majority of its product build takes place in Arizona. The sites are running at 70-75% capacity, Jabil said.

In its December quarter Varian's electronics manufacturing revenues were $44.9 million, down 4.6% year-on-year. The business unit had a pro forma and GAAP operating profit margin of 10.2%.

The Varian unit should flourish under Jabil's larger footprint, Main said. "Being a U.S. only business hurt [Varian], Main said. "They couldn't scale."

Varian's top 10 customers make up 60-65% of annual revenues.

Main said that Varian specializes in market segments that are in the early stages of outsourcing.

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