Kyphon to Buy St. Francis Medical for $525 Million Plus $200 Million Contingency Payments
BY JOHN MCCORMICK, DECEMBER 4, 2006
KA-BOOM!!! This morning, Kyphon announced that it will be acquiring St., Francis Medical for $525 million in cash and $200 million in contingency payments based on performance. This effectively pre-empts the St. Franics medical IPO.
St. Francis made waves in the spine industry when it received FDA approval last year (after a contentious battle for its PMA approval) for its interspinous process spacer the X-Stop. Since approval St. Francis revenues have grown rapidly and the company has become extremely profitable. For the 9 months ended September 30, 2006, St. Francis revenues were $36.5 million - a 414% growth year over year. EBITDA (unlevered earnings) were approximately $13.6 million or 37% of revenues - highly profitable by any measure. If St. Francis were to achieve $50 million of revenue this year, the acquisition would, including the contingency payments would represent a 14.5x revenue multiple.
The revenue-based contingent payments of up to $200 million are payable in either cash or a combination of cash and stock, at Kyphon's election. Any contingent payments will be made no earlier than 2008. The acquisition will not close until receipt of regulatory approval (which should not be a problem here) and Kyphon presently anticipates that closing should occur in the first quarter of 2007.
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