Royal Philips, based in Amsterdam, agreed to acquire Volcano, which makes catheter-based imaging and measurement solutions for cardiovascular uses, for $18 a share to boost its image-guided therapy business, according to a release. The deal is expected to close in the first quarter.
Shares of the small cap med-tech group including AtriCure (ATRC) , Endologix (ELGX) , Heartware International (HTWR) , Thoratec (THOR) , Novadaq Technologies (NVDQ) , TriVascular Technologies (TRIV) and Spectranetics (SPNC) , were all rising on speculation of more M&A in the industry, at least one analyst said.
Shares of Volcano jumped 55.2% to $17.83 on volume of more than 85 million, while Volcano's three-month daily trading volume average is around 830,000 shares. Here's what analysts had to say about the deal:
Jason Mills, Canaccord Genuity (Hold, $18 PT)
At 3x EV/sales ($18/share cash), we believe Philips' acquisition of VOLC is a fortuitous exit for VOLC shareholders, thus do not expect other bidders. In fact, we think Philips will complete this deal by early February. Importantly, we believe the read-through to both VOLC's direct competitors (i.e. [Boston Scientific BSX], private IVUS players) and the small-cap cardiovascular comp group is positive. As to the former, we think a marriage between VOLC and Medtronic MDT or Abbott Laboratories ABT would have been more disconcerting to VOLC's direct IVUS competitors, as we think they would have been able to exert far greater pressure on IVUS competition given the sales force synergies MDT/ABT would have had at their disposal. In other words, we think MDT or ABT could have competed much more on price (i.e. IVUS disposables) than Philips will, as the latter will likely keep, if not expand VOLC's direct sales force, thus limiting the financial leverage on the SG&A side. To wit, we estimate Philips may realize only about $40-50M in cost synergies near-term - almost all in G&A. What's more, BSX and other IVUS competitors could have been disadvantaged far more from a MDT/ABT acquisition of VOLC insofar as they could bundle IVUS/FFR disposables with other cath lab disposables (drug-eluting stents, etc). We wouldn't be surprised if BSX and others are giddy about this transaction.
In terms of the read-through to the broader small-cap med-tech group, we think it is positive. The group is trading at 3.2x FTM EV/sales, just a modest premium to VOLC's bid. That said, the median two-year forward revenue CAGR for the group is >10% and the mean GM profile is higher than VOLC. To wit, we expect M&A to pick up in the medtech space, and think several companies offer more growth potential to several potential acquirers - namely ATRC, ELGX, HTWR, THOR, NVDQ, TRIV and SPNC.