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Firm will spend $225M on deal

By Omar Ford

Staff Writer

In a bold move to expand its presence outside of the U.S., Cryolife Inc. revealed its plan to acquire Hechingen, Germany-based Jotec GmbH for an upfront payment of $225 million. The Kennesaw, Ga.-based company said it would close on the deal later this year. Jotec develops stent grafts and generated revenues of $50 million for the 12 months ending June 30.

Cryolife executives said the acquisition gives it access to the $1.2 billion U.S. stent graft market, which is expected to grow to about $1.5 billion by 2021.

"We are fortunate to have found an opportunity like Jotec," Pat Mackin, chairman, president and CEO of Cryolife, said during a Wednesday call. "We are confident the acquisition will make Cryolife a much more profitable company and formidable competitor in the coming years."

Jotec has developed the E-vita Open Plus hybrid stent graft system, a device that allows a one-stage treatment of complex thoracic aortic diseases through the combination of surgical and endovascular treatment. The company has also developed the E-vita Thoracic 3G, Extra thoracoabdominal aortic aneurysm repair system, E-tegra abdominal aortic aneurysm (AAA) stent graft system, and E-liac stent graft system.

Mackin noted Jotec faced off against significant competition in the AAA and stent graph markets. W.L. Gore & Assoc., Cook Medical Inc. and Terumo Corp. all have products that go head-to-head with Jotec. But Mackin said the company had an advantage with the differentiated products in its pipeline.

"There is little competition for Jotec's differentiated products," he said. "This is where we will utilize the resources of our differentiated technologies to help us compete and win, allowing us to pull through some of the less differentiated products in the portfolio."

Analysts said Cryolife was long overdue for an acquisition.

In July, Suraj Kalia, an analyst with Northland Capital Markets, noted the company had spent about $1 million in M&A legal fees during 2Q17.

"The key question remains . . . what asset will it acquire," Kalia said. How will it be financed? To us, this is the real catalyst on the horizon."

The company said it expects to finance the transaction and related expenses, as well as refinance its existing $69 million term loan, with new $255 million senior secured credit facilities, consisting of a $225 million institutional term loan B and a $30 million undrawn revolving credit facility, $56.25 million in Cryolife common stock, and available cash on hand.

Jason Mills, an analyst with Canaccord Genuity spoke in favor of the Jotec acquisition calling it a "bold deal."

"Cryolife's acquisition of Jotec, a company largely focused on the treatment of aortic disease, helps diversify Cryolife's revenue streams while providing the firm access to a very large market with differentiated technology," Mills said.

He added, "The acquisition accelerates Cryolife's go-direct strategy in OUS markets, and in the future, allows Cryolife to leverage its established U.S. sales channel to drive sales in domestic markets."

Cryolife will now have about 70 sales reps in Europe.

"About 100 percent of Jotec's business is OUS, where Cryolife has the most work to do to scale up its product portfolio and direct sales presence," Mills said.

In addition to the proposed acquisition, Cryolife also reported 3Q17 revenues of $45.1 million, just shy of its previously announced guidance of $46.5 million to $47.5 million citing the negative impact of recent hurricanes in Florida and Texas.

"We would be remiss if we didn't recognize, and express some disappointment in the [3Q17] miss," Mills said. "That said, given the storms in Florida and Texas likely had an impact on many companies, we think investors can forgive this part of the miss."

However (NYSE:CRY) shares were down as much as 14 percent Wednesday trading at $20, due to Cryolife missing expectations.

Just a dash of M&A

Jotec is one of the largest acquisitions in Cryolife's history. In the past few years, the company has only had a small handful of acquisitions.

In 2015, the company revealed its intentions to pick up On-X Life Technologies Holdings Inc. for $130 million. (See BioWorld MedTech, Dec. 24, 2015.) The acquisition of the Austin-based company opened the door for Cryolife to effectively compete in the mechanical heart valve market.

In 2012, Cryolife acquired Hemosphere Inc. for $17 million in cash. (See BioWorld MedTech, May 18, 2012.) The Eden Prairie, Minn.-based company developed the Hemodialysis Reliable Outflow (Hero) graft for end-stage renal disease hemodialysis patients with limited access options and central venous obstruction.

However, in February of 2016, Cryolife sold the Hero graft to Merit Medical Systems for $19 million, according to Cortellis Deals Intelligence.

In 2011, Cryolife acquired Irvine, Calif.-based Cardiogenesis Inc. for $22 million. (See BioWorld MedTech, May 18, 2011.) Cryolife was able to gain surgical products used in the treatment of diffuse coronary artery disease and severe angina through the acquisition.

Published  October 12, 2017

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