TPG Capital takes Exactech private for $625M

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Exactech press release      TPG Capital website

TPG Capital taking Exactech private for $625M (MedicalDeviceDaily)

Orthopedic implant and instrumentation firm, Exactech Inc., entered a definitive merger agreement with private equity company, TPG Capital, in a transaction that places the value of Exactech at $625 million. The agreement will provide growth capital to execute the company’s strategy, and amounts to $42 in cash per share for shareholders.

“We believe that this agreement offers Exactech shareholders an opportunity to realize the company’s growth and capture the value that’s been created since going public 21 years ago, at a significant premium to the current share price,” said Jim Binch, lead independent director, Exactech.

The purchase price is a premium of about 31 percent above the closing price on Oct. 20, and 37 percent above 90-day volume weighted average price. Shares were up 31 percent to $41.88 at the end of trading on Oct. 23 on news of the acquisition. J.P. Morgan Securities LLC is acting as financial advisor, and Greenberg Traurig P.A. and Greenberg Traurig LLP are serving as legal advisor to Exactech. Ropes and Gray are legal advisors to TPG Capital.

Deal closure in 2018, growth in sector

The transaction is anticipated to close in 1Q18, and Exactech will be removed from the NASDAQ stock exchange with TCG’s acquisition of all outstanding shares of common stock. Management stockholders have agreed to trade a percentage of their Exactech shares for equity securities in the new merged company, to be based in Gainesville, Fla. TPG has invested more than $8 billion in health care firms across the last decade.

“The basis of our investment thesis is that there are outstanding opportunities for nimble, innovative and responsive companies to invest in growth and compete with the larger competitors in the orthopedic industry,” said Jeff Binder, senior advisor, TPG Capital. “I look forward to working with management to fully realize the potential of a company for which I have always had great respect.”

Exactech was founded in 1985 by Bill Petty, an orthopedic surgeon, Betty, his wife, and Gary Miller, a biomedical engineer. The company went public in June 1996 and markets devices in the U.S., Europe, Asia, Latin America and the Pacific. The company manufactures knee, hip and shoulder implant systems, as well as biologic materials and surgical instruments for the treatment of joints effected by injury or disease.

Revenue history

In July, Exactech reported 2Q17 revenue of $67.3 million, a 2 percent increase from the same period last year ($66.1 million), and a 3 percent increase based on constant currency. U.S. revenue also jumped 2 percent year over year to $45.7 million, while international revenue increased at one percent to $21.6 million for the same time periods. Broken down by decision, revenue for extremities increased 19 percent on constant currency basis and 19 percent revenue increase to $29.5 from $24.8 million. Revenue in the knee division was unchanged at $19.6 million though constant currency was up 1 percent in the second quarter. Revenue in the hip division declined 8 percent from $12.5 million revenue for the same period last year to $11.5 million in second quarter of 2017, and was down 7 percent on constant currency.

“For the first half of 2017, we reported a 4 percent increase in our revenue; however, excluding the impact of the divested spine products from the prior year we reported 7 percent growth in revenue during the first half of the year,” said David Petty, CEO and president, Exactech, at the time.

In February, Tennessee-based Choicespine purchased Exactech’s spinal portfolio, adding to the former’s efforts to become a comprehensive spinal implant firm. With the divesture Exactech was able to focus on its core business, and aim toward increasing profitability and productivity, said the company. Transaction terms were not disclosed.

Petty said at that time, “We are confident the transfer of these products to Choicespine will provide a continued focus on improving patient care for that population. This divestiture will allow us to sharpen our focus on investments in the core extremities and large joint segments of our business.”

An Aug. 29, 2016, commentary article on The Street website reported Exactech gained 53 percent in share price at that point in the year (2Q16), far outstripping the average increases of companies in the space so far at 14 percent. The company reported 8 percent year over year revenue increases to total $66.1 million in second quarter of last year. The growth was driven by an 18 percent spike in orthopedic implants in extremities, and 13 percent jump in hip implants. During the same time period, Exactech’s gross margin moved from 68.6 percent to 69.3 percent based on comparison from the same time in the year prior.