Teleflex CEO Benson Smith expected some investors to be surprised by yet another billion-dollar acquisition, but sometimes businesses simply must strike while the iron is hot.
The Wayne, PA-based company said it will buy NeoTract for up to $1.1 billion. The deal comes just seven months after Teleflex completed its $1 billion acquisition of Vascular Solutions.
"I'm sure that at least some of you may be a bit surprised that Teleflex is once again active in M&A so quickly after announcing the acquisition of Vascular Solutions. Well, we are not," Smith said Tuesday during a conference call.
Smith said Teleflex has made significant progress with the integration of Vascular Solutions, which he attributed largely to the company's business unit structure that allows one business to integrate and manage an acquisition while a separate unit then evaluates other acquisition opportunities.
"In fact, even while we were completing the acquisition of Vascular Solutions we told our business development group to continue to look for that next great asset, and it is our belief that we have found it in NeoTract,” Smith said.
NeoTract has seen its revenues nearly triple since it launched its UroLift technology for treating lower urinary tract symptoms due to benign prostatic hyperplasia (BPH). The system delivers permanent implants designed to hold open the urethra in order to reduce the prostate obstruction without cutting, heating, or removing prostate tissue.
The company's revenues jumped from $18 million in 2015 to $51 million in 2016, and 2017 revenues are projected to be between $115 million and $120 million. From there, Smith said, the company anticipates at least 40% growth in 2018.
The merger calls for an upfront cash payment of $725 million at closing, and up to an additional $375 million in commercial milestone payments related to sales through the end of 2020. The deal is slated to close within the next 30 days.
Unlike the last three scale acquisitions that Teleflex has completed, Smith said this acquisition does not come with a significant cost synergy opportunity because the company intends to manage NeoTract as a separate business unit to ensure its growth trajectory continues.
BPH is an age-related condition, and the market is large and unpenetrated with the potential to reach $30 billion worldwide, according to analysts.
Mike Matson of Needham & Company said in a note related to the deal that Teleflex is paying a high price but views NeoTract as a unique asset with a highly differentiated technology, large potential market, rapid growth, long-term clinical data, and strong patent protection.
When asked about the company's appetite for other NeoTract-like deals, Smith said that if Teleflex can find them, the company would be keenly interested, but finding another gem like NeoTract won't be easy. "There are not many devices that are this size growing at 40% and not only have high gross margin enhancement over the next several years," he said. "So we're not necessarily counting on discovering a whole lot of these over the next couple of years, which makes us so excited to be able to pull this into our bag."
Amanda Pedersen is Qmed's news editor. Contact her at [email protected].