Merit's buyout of Thomas, a unit of General Electric Co.'s healthcare business, GE Healthcare, is an all-cash deal subject to certain unspecified post-closing adjustments. Merit will finance the buyout by expanding its credit line with Wells Fargo Bank NA to $275 million.
Merit's board of directors has approved the deal and the company expects to close the buyout by the end of the year.
The deal brings South Jordan, Utah-based Merit a portfolio of catheter-based vascular access delivery devices for procedures in electrophysiology (known as EP), cardiac rhythm management (CRM) and interventional cardiology.
Thomas, based in Malvern, Pa., manufactures brands such as ClassicSheath, a device that helps install pacemakers, and the HeartSpan Transseptal Needle, which creates the primary puncture during a transseptal procedure (a surgical procedure where an incision is made between two cavities).
Merit expects Thomas to generate about $37 million in revenue in 2012 with gross and operating margins of about 55% and 44%, respectively.
For Merit, such products boost its cardiology capabilities. Merit manufactures disposable medical devices used in interventional and diagnostic procedures in fields such as cardiology, radiology and endoscopy.
"We believe this transaction will help expand our market presence into new product categories, particularly in interventional cardiology," Merit chairman and CEO Fred Lampropoulos said in a statement. "A majority of cardiac rhythm access procedures utilize products of the nature manufactured by Thomas."
Lampropoulos believes that it can expand Thomas' reach globally into countries such as China, Japan and Russia.
Interventional cardiology has become a particularly competitive and growing field in medical devices. Several of the world's med-tech giants, such as Medtronic Inc., Boston Scientific Corp. and St. Jude Medical Inc., for example, have spent millions to either acquire or create transcatheter heart valves, commonly known as TAVI systems, which are replacement valves that surgeons can implant without resorting to open-heart surgery. Edwards LifeSciences Corp. has grown into a company with a roughly $10 billion market capitalization by creating a business around its signature heart valves.
Boston Scientific has made a string of acquisitions over the past year to beef up its cardiovascular offerings, acquiring companies such as Vessix Vascular Inc. (up to $425 million), which makes a treatment for uncontrolled high blood pressure; Rhythmia Medical Inc. (as much as $265 million), which makes cardiac mapping and navigation equipment for heart treatments and diagnosis; and investment partner Cameron Health Inc. (up to $1.35 billion), which produces a subcutaneous implantable cardioverter defibrillator.
Companies such as cardiology specialists Edwards, HeartWare International Inc. and Thoratec Corp. have long been seen as buyout targets. HeartWare's prospects brightened on Nov. 20, when the Food and Drug Administration approved its left ventricular assist system, or LVAD. That product competes with Thoratec's rival system, HeartMate II.
In a recent research note, Leerink Swann LLC analyst Danielle Antalffy pegged the market for LVADs as potentially worth more than $2.5 billion. Thoratec attempted to merge with HeartWare in 2009, but it scrapped the deal after the Federal Trade Commission launched a suit to prevent it.
Merit's stock climbed to $13.92 per share during midday trading Tuesday, up 5% from a $13.23 per share Monday close. The company posted $33.19 million in net income on $359.45 million in sales in 2011.
Parr Brown Gee & Loveless was Merit's legal counsel in the deal. Piper Jaffray & Co. was the buyer's financial adviser. Both Piper Jaffray and Raymond James Financial Inc. provided a fairness opinion to Merit's board of directors.
Thaddeus Malik and Richard Radnay led a team at Paul Hastings LLP that provided GE Healthcare with legal advice. Moelis & Co. was the seller's financial adviser.
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Andy Levine, an M&A partner at Jones Day in New York, believes that increased buying activity by Chinese companies will be a key driver of global M&A over the next decade. The Chinese have been big buyers of natural resources in Australia, Africa and South America, and Shuanghui International Holdings' purchase of Smithfield Foods last year was a sign of China's increased interest in U.S. companies. The deal stirred some protectionist rumblings in the U.S., but CFIUS approved the transaction, and Levine believes that decision is a positive sign for the future of Chinese M&A activity in the U.S. More video