Silipos Finally Finds a Home with Langer
BY JOHN MCCORMICK, SEPTEMBER 27, 2004
Last week Langer (NASDAQ: GAIT) announced that it inked a deal to acquire Silipos, Inc. Silipos, which operates out of New York City and Niagara Falls, NY, manufactures gel-based products that have orthopedic and prosthetic applications such as heel cups, pads and elastomer sleeves. About 65% of Silipos's revenues are orthopedic/prosthetic related and the remainder is skin care, wound care, diabetic socks and the like. The purchase price of $15.5 million will be paid with $5.0 million of cash at closing, a $7.5 million promissory note due on or before March 31, 2006 and a second $3.0 million promissory note due on or before December 31, 2009. Up to $2.5 million of additional payments to the seller are due under certain circumstances. The deal has not yet closed and the purchase price is subject to a dollar for dollar reduction to the extent certain minimum tangible net worth requirements are not satisfied by Silipos.
In its most recent fiscal year ending March 31/2004, Silipos achieved sales of $20.8 million. That substantially increases the pro-forma revenues of Langer which were $24.9 million on an LTM basis as of March 31/2004. Combined, pro revenues are $45.7 million an LTM basis as of March 31/2004.
Silipos has been bought and sold over the last few years, but it does look like it may have found a home. Since Langer specializes in foot and gait-related biomechanical products and Silipos augments the product line and distribution opportunities, the transaction makes sense at a basic level. Langer has also had slower internal revenue growth in the past than Silipos, so the acquisition stands to potentially augment Langer's internal revenue growth. We have heard that Silipos has also had higher EBITDA margins than Langer has in the past and therefore the acquisition stands to raise Langer's overall EBITDA margins.
Langer's stock price did not move on the news its market capitalization remained at approximately $30 million at the end of the week, however. This may be because Langer has been substantially leveraged. On June 30/2004 Langer's net debt (LT debt - cash) stood at approximately $12.9 million while LTM EBITDA (earnings before interest, taxes, depreciation and amortization) was about $1.8 million. On that basis, the latest available enterprise value to EBITDA can be calculated at 23.8x which is expensive to an LBO practitioner, but evidently not to the public markets. Since this transaction adds $15 million of additional net debt, to be accretive, Silipos only needs to add a few hundred thousand of EBITDA. To the extent that Silipos can deliver on the earnings, this deal could well be substantially accretive from a valuation standpoint.
