Orthofix to Buy Blackstone Medical for $333 Million
BY JOHN MCCORMICK, AUGUST 7, 2006
This morning Orthofix International, NV (NasdaqGS: OFIX) announced that it has signed an agreement to acquire independent spinal implant developer Blackstone Medical, Inc. for $333 million in cash. Blackstone revenues were $22mm in 2Q:06 and EBIT was approximately $2mm. Trailing twelve month revenues were approximately $60mm at the end of June, so this represents approximately a 5.5x revenue multiple. According to Orthofix management, the acquisition is expected to be dilutive to 2007 GAAP earnings and to be accretive to 2008 GAAP earnings. The deal is expected to close in the September timeframe.
This is big news for Orthofix since it represents a major strategy development for the company on two fronts. First, Orthofix has historically prided itself on a "surround the surgeon" product suite of non-operative orthopedic devices such as braces and stimulators. Now the Company is doing a deep dive into surgical implants - largely a new area. Second, Orthofix is a mature cash flowing business which is now entering the growth arena. Management and the Board hopes that this will help transform the stock's story from value to growth.
To execute, management is seeking to leverage the existing Orthofix direct salesforce and customer base to expand the Blackstone product sales. Along with Blackstone, Orthofix is acquiring a network of 45 external distributors (200+ feet on the street) in the United States which the Company plans to "optimize" according to management on this morning's 11:30am conference call. It's also no secret that Orthofix is planning to exit its distribution agreement with Medtronic on its bone growth stim sales. Finally management plans to enhance its physician training and reimbursement capabilities.
Orthofix plans on utilizing debt financing to fund the deal which will leverage the Company. On the conference call, management noted that within the next twelve months some form of equity such as a convert or a secondary could be used depending on where the stock price goes.
By midday, the market was still exhibiting a "show me" reaction to the news with the OFIX stock price reacting neutrally.
