Recently, AngioDynamics (ANGO) inked a definitive agreement to acquire the outstanding capital stock of privately-owned Vortex Medical Inc. for $15 million in cash. The acquisition is expected to close in October 2012.
Norwell, Massachusetts-based Vortex is a provider of medical devices related to vascular occlusion diagnosis and treatment. Vortex markets the patented AngioVac system which includes the AngioVac Cannula and Circuit. The U.S. Food and Drug Administration (:FDA) have cleared this AngioVac Cannula and Circuit which is awaiting European CE Mark approval. The system has the potential to become the gold standard of care for the treatment of vascular occlusion.
Terms of the Agreement
Besides a cash payment of $15 million, AngioDynamics will make earn- out payments in cash, over a 10 year period. Per the agreement, AngioDynamics will make a certain annual earn-out payment of roughly $8 million for the first five years while annual earn-out payments will vary on the level of net sales of the AngioVac system for the rest of the period.
Financial Impact of the Deal
The acquisition is expected to be dilutive to AngioDynamics’ reported earnings by 9 cents for fiscal 2013. AngioDynamics envisages incremental revenues of $1 million in fiscal 2013. However, the company expects an approximate $5 million decrease in operating income along with a trivial impact on EBITDA.
For fiscal 2014, the buyout will be accretive to AngioDynamics’ top as well as bottom line. The company expects the acquisition to boost sales by $10 million in fiscal 2014.
Peripheral Vascular Product Portfolio to Benefit from Deal
The addition of the AngioVac system to its portfolio is a major benefit for AngioDynamics. Moreover, with an average selling price of $11,500 per procedure, the offering is slated to improve margins at AngioDynamics.
The recent acquisition supports AngioDynamics’ strategy of focusing on sustainable, profitable growth on the back of investment on innovated and differentiated products. The deal is a strategic fit for the company’s peripheral vascular product portfolio which includes the well regarded Namic fluid management brand acquired from the buyout of Navilyst Medical, under its core vascular segment.
The AngioVac system represents significant commercial potential as statistics suggest that about one million Americans suffer from venous thromboembolism annually, resulting in roughly 0.3 million casualties.
Annual net revenues of the AngioVac system could exceed $50 million within the next five years. Thus, the acquisition will bolster revenues for AngioDynamics’ peripheral vascular division under its vascular segment which faced a tough first quarter in fiscal 2013. On a pro forma basis, revenues from the core vascular segment (84% of total revenue) declined 2% to $69.8 million. Within vascular, pro forma sales from the peripheral vascular sub-segment remained nearly flat year-over-year at $43.2 million.
The acquisition will be funded with cash and cash flow from operations. AngioDynamics ended the first quarter with cash and cash equivalents of $18.9 million, down 62.6% year over year, due to the Navilyst acquisition.
AngioDynamics is well positioned for sustained growth driven by strong market adoption of the NanoKnife system and its focus on interventional peripheral products. The acquisition of Navilyst Medical is expected to be accretive to AngioDynamics’ earnings by at least 8 cents in fiscal 2013.
However, AngioDynamics’ product lines face strong challenges from the competitive offerings of its larger rivals such as Boston Scientific Corporation (BSX) and CR Bard Inc. (BCR).
AngioDynamics currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term ‘Neutral’ recommendation on the stock.
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