Wright Focuses On Global Expansion With Latest Acquisition Plan


Espicom View: We have previously predicted an upsurge in the acquisition of smaller niche extremities product developers, as top industry competitors race to be at the front of this expanding market. This acquisition is a prime example of this, and fits perfectly with Wright Medical Group's strategy to accelerate growth within the global extremities segment. On the road to transformation so far, the company has enriched its extremities product portfolio, but has primarily been US-focused. International sales accounted for less than 30% of revenue in Q213, and Wright is keen to grow this percentage. Biotech International almost exclusively operates outside of the US, and will immediately boost Wright's European and wider international presence. Furthermore, the addition of Biotech International's specialised portfolio will push Wright further ahead of its rivals by allowing it to offer a number of innovative and unique products.

Wright Medical Group has entered into a definitive agreement to acquire Biotech International, a privately held extremities company based in Salon-de-Provence, France, from its holding company, Upperside Group. The transaction will significantly expand Wright's direct sales channel in France and international distribution network and add Biotech's complementary extremity product portfolio to further accelerate growth opportunities in Wright's global Extremities business.

In H113, Wright underwent a number of strategic restructuring changes, designed to transform the company into a dedicated extremities and biologics-focused firm. The first step in this restructuring was taken with the March acquisition of BioMimetic Therapeutics, a company in possession of a breakthrough biologics platform and pipeline. Furthermore, in June, Wright entered into an agreement to divest its OrthoRecon business, the segment responsible for its hip and knee product portfolio, which accounted for approximately 55% of the company's revenue in FY12. According to Wright, the sale of OrthoRecon enables both businesses to grow as separate, global companies focused on their unique market space.

A number of companies have recognised the significant opportunity in investing in the high-growth extremities market, and are beginning to seize market share. As a result of the disposal of OrthoRecon, Wright, deemed the market leader in foot and ankle surgical products, holds an estimated 30% of the US total ankle arthroplasty market and is the leader in a number of upper extremity market segments, including finger joints, radial head replacement, ulnar shortening systems and intramedullary wrist fracture repair.

As a smaller, high-growth extremities company with breakthrough biologic opportunities, Wright believes it is able to devote full resources and attention on accelerating growth opportunities in this area. These opportunities include improving sales productivity, extending the global reach and penetration of its products in key international markets, and seeking to gain US regulatory approval for Augment bone graft, which the company acquired via its BioMimetic takeover. Wright believes that this strategy will enhance its ability to create significant shareholder value; indeed, the strategy is already beginning to benefit the company, as evidenced by foot and ankle product sales growth of 30% in Q213, compared with Q212. The acquisition of Biotech is a key milestone in the execution of this strategy.

Founded in 1987, Biotech specialises in the design, manufacture and distribution of orthopaedic extremity hardware, specifically fixation screws and plates for hand and foot indications; and dental surgery implants and dentures. Biotech is active in more than 60 countries worldwide, employs nearly 200 people and generates annual revenue of around EUR35mn. On a US GAAP basis, Biotech had extremity revenues in the US$15mn range for the 12 months ended June 30 2013, primarily in France and other international markets, and minimal revenue in the US.

Under the terms of the agreement, Wright will acquire 100% of Biotech's outstanding equity shares on a fully diluted basis, at a total offer price of up to US$80mn as follows: US$75mn payable at closing, comprised of approximately US$55mn of cash and US$20mn of Wright common stock, and up to an additional US$5mn of cash contingent upon the achievement of certain revenue milestones in FY2014 and FY15. All Wright common stock issued in connection with the transaction will be subject to a one-year lockup. As part of the transaction, Biotech will spin off its dental business before the close, which is expected in Q413.

Robert Palmisano, President and CEO of Wright, believes that the acquisition of Biotech is an excellent fit for its Extremities business, enabling Wright to immediately expand its direct foot and ankle presence in Europe and add a base of extremity revenue that it can effectively grow. In addition, Biotech's products complement Wright's existing foot and ankle portfolio and include a number of specialised products that expand its extremities offering. Palmisano plans to use Biotech's direct sales channel in France and established distributor presence in emerging markets to extend the reach of its international distribution network and further accelerate growth opportunities in its global Extremities business.

Although Wright cannot finalise the purchase price allocation and fair value assessment of the contingent consideration until the closing, and thus cannot assess the exact impact on its future GAAP earnings, the company anticipates that the transaction will be neutral to adjusted EBITDA in FY14 and accretive thereafter.

This article is tagged to:
Sector: Medical Devices
Geography: France, United States

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