My first impressions on day 1 of this announcement.
- Orthofix+SeaSpine is a strange merger’ish type of acquisition (shades of the cashless Danek+Sofamor combination when Danek took control).
- The motivation for the combination – OFIX needed product diversity and SPNE needed cash liquidity (just my opinion).
- OFIX will be running the show as Jon Serbousek as the Board Chairman. All shareholders will end up with OFIX stock only.
- Value of the deal is around $215M (the market cap of SPNE).
- Global 2022 revenues of each are roughly $500M OFIX and $200M SPNE.
- Stock exchange purchase. (SPNE stockholders will get OFIX stock pegged at 0.4163 shares sometime in 1Q2023 and who knows what the value of the OFIX stock will be at closing).
- There will be a new company name TBD. Are they trying to rebrand Orthofix? Seaspine is a better name than Orthofix but Dallas is not by the sea.
- New Board will consists of 5 seats OFIX, 4 seats SPNE.
- What happens to all the trauma products? Orthofix started in Italy in 1980 with external fixators. Trauma is 25% of OFIX revenue today.
- How will sales distribution be integrated in the US? This will be messy.
- There will be 2 locations for this newco spine – Dallas and Carlsbad (isn’t this OFIX’s fundamental problem with scattered entities all over the place already?)
- Integration will be the challenge (same as it was with Blackstone Medical and Italy). Hopefully 1+1 = at least 1.5 this time. There will be cultural challenges between the SoCal employees and Texas employees (eg: Medtronic + Kyphon)
- There will be blood – press release says “there will be $40M annual cost cutting”, mostly salary cuts in CA and TX.
Orthofix, SeaSpine plan all-stock merger to create global spine and orthopedic company
Under the terms of the agreement, SeaSpine shareholders will receive 0.4163 shares of Orthofix common stock for each share of SeaSpine common stock owned. Once the transaction closes, Orthofix shareholders will own approximately 56.5% of the combined companies. SeaSpine shareholders will own approximately 43.5% of the combined company on a diluted basis, according to an SEC filing.
Both companies’ boards have unanimously approved the merger. They plan to close the transaction in the first quarter of 2023, naming the new combined company beforehand.
Shares in OFIX were down more than 20% to $14.60 apiece, and SPNE was up more than 4% to $5.81 apiece in by late afternoon trading. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was down more than 1%.
BTIG analysts Ryan Zimmerman and Sam Durno were positive about the merger news: “We think that the merger between OrthoFix (OFIX) and SeaSpine (SPNE) solves some immediate problems for both companies, including refreshing OFIX’s spinal hardware and biologics portfolios, providing SPNE with immediate access to cash, and providing significant scale in a competitive market in which OFIX was underperforming.”
Orthofix and SeaSpine combined have products distributed in 68 countries, have approximately 1,600 employees and a global R&D and manufacturing footprint. The combined company would also have annual revenues of approximately $693 million when its fiscal year ends on September 30, 2022, according to an investor presentation today. Officials at the companies expect the combined business’ sales mix to be spinal implants and enabling technology (35%), bone growth therapies (27%), biologics (23%) and orthopedics (15%).
Within three years of the transaction closing, Orthofix and SeaSpine anticipate revenue to be in the range of $1 billion, according to an investor presentation today. They expect revenue growth CAGR in the double-digits range,
In addition, Orthofix and SeaSpine said the transaction is well-financed. They project $125 million of liquidity at closing, growing into an existing $300 million credit facility over time.
Merged company headquarters and CEO named
The new board of directors will have nine directors, five designated by Orthofix and four designated by SeaSpine. Orthofix’s current President and CEO Jon Serbousek will serve as the combined company’s executive chair of the board, and SeaSpine President and CEO Keith Valentine will become president, CEO and a board member. They’ll name the rest of the leadership team before the transaction closing, including representatives from both companies.
“This transaction brings together two complementary organizations to create an industry leader with the immediate financial strength to self-fund investments that deliver both growth and better patient outcomes. We are excited about the value we can create for the combined company’s shareholders, the new opportunities opened for employees and our ability to now provide surgeons and hospital partners a complete procedural solution using cutting-edge technology at every level,” Valentine said in a news release.
The combined company will be based in Lewisville, Texas, where Orthofix is currently headquartered. It will retain offices in Carlsbad, California. The Lewisville location will conduct general business, product development, medical education and manufacturing. Meanwhile, the Carlsbad location will focus on spinal product innovation and surgeon education.
A Verona, Italy-based office will also be retained with an emphasis on product innovation, production and medical education in orthopedics. The combined company plans to keep the current facilities in the following locations: Irvine, California; Toronto; Sunnyvale, California; Wayne, Pennsylvania; Olive Branch, Mississippi; Maidenhead, U.K; Munich; Paris and São Paulo, Brazil.
Orthofix, SeaSpine combined portfolios to create strategic market plans
Once combined, Orthofix and SeaSpine’s portfolios will offer a number of devices in the spine and orthopedics market segments, including the M6-C artificial cervical disc, the Flash navigation system for camera-based, machine-vision algorithmic imaging, Fitbone inter medullary limb lengthening system, Fitspine scoliosis device and many advanced interbody devices.
The two companies also have many biologics and regenerative technology offerings for use by surgeons in spine and orthopedic solutions.
SeaSpine’s 7D Flash surgical navigation system uses machine-vision algorithms and camera-based technology for cranial and spine procedures [Image courtesy of SeaSpine]“This transaction significantly advances our mission to deliver innovative, quality-driven solutions that make us a partner of choice for surgeons in their work to improve patient mobility,” Orthofix President and CEO Jon Serbousek said in a news release. “The combined company’s broad portfolio of technology, expanded commercial capabilities and ability to make greater investments in innovative solutions provide a clear roadmap for sustainable, top-tier growth and increased competitiveness across a broad spectrum of products and services. We look forward to capitalizing on this merger’s tremendous value creation opportunities.”
Orthofix and SeaSpine said the merged companies will also have a complementary portfolio of specialized hardware that will enable the company to service the full patient continuum of care for pediatric orthopedic surgeons.
SeaSpine and Orthofix anticipate revenue synergies with cross-selling the portfolios in the U.S. and the ability to sell SeaSpine’s biologics and 7D technology in Orthofix’s internationally established markets. The deal will support large distributor conversions and increase product offerings per procedure, according to the companies.
The companies anticipate cost savings from reductions in redundant overhead, public company costs and supply chain efficiencies. It expects to generate at least $40 million in annualized cost savings, not including stock-based compensation, within three years following transaction closure. Economies of scale through higher spinal implant use will drive working capital and capital expenditure efficiencies for the combined company.
SeaSpine Holdings Corporation
Orthofix and SeaSpine to Combine in Merger of Equals to Create Leading Global Spine and Orthopedics Company
- Highly complementary spine and orthopedics portfolios
- One of the industry’s broadest biologics and regenerative technology offerings
- Differentiated and synergistic enabling technologies
- Meaningful cross-selling revenue synergies and cost savings
- Financial strength to pursue growth investments without need for immediate equity financing
- Expected to be adjusted EBITDA accretive to Orthofix by the second year following close including cost savings
- Companies to host joint conference call and webcast today at 8:00 a.m. ET
Orthofix (NASDAQ: OFIX), a global medical device company with a spine and orthopedics focus, and SeaSpine (NASDAQ: SPNE), a global medical technology company focused on surgical solutions for the treatment of spinal disorders, today announced they have entered into a definitive agreement to combine in an all-stock merger of equals.
The combined company, to be named prior to the transaction’s closing, will be a leading global spine and orthopedics company with highly complementary portfolios of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions and a leading surgical navigation system. With products distributed in 68 countries world-wide, approximately 1,600 employees and a global R&D and manufacturing footprint, the new company would have revenues of approximately $693 million as of the twelve months ended September 30, 2022.
Under the terms of the agreement, which was unanimously approved by the Boards of Directors of both companies, SeaSpine shareholders will receive 0.4163 shares of Orthofix common stock for each share of SeaSpine common stock owned. Following the close of the transaction, Orthofix shareholders will own approximately 56.5 percent of the combined company, and SeaSpine shareholders will own approximately 43.5 percent of the combined company, respectively, on a fully diluted basis.
“This transaction significantly advances our mission to deliver innovative, quality-driven solutions that make us a partner of choice for surgeons in their work to improve patient mobility,” said Jon Serbousek, Orthofix President and Chief Executive Officer. “The combined company’s broad portfolio of technology, expanded commercial capabilities and ability to make greater investments in innovative solutions provide a clear roadmap for sustainable, top-tier growth and increased competitiveness across a broad spectrum of products and services. We look forward to capitalizing on this merger’s tremendous value creation opportunities.”
Keith Valentine, SeaSpine President and Chief Executive Officer, said, “This transaction brings together two complementary organizations to create an industry leader with the immediate financial strength to self-fund investments that deliver both growth and better patient outcomes. We are excited about the value we can create for the combined company’s shareholders, the new opportunities opened for employees and our ability to now provide surgeons and hospital partners a complete procedural solution using cutting-edge technology at every level.”
Strategic and Financial Benefits of the Merger
- An industry leader in spine and orthopedics portfolios. The combination of Orthofix’s and SeaSpine’s portfolios will create an innovative suite of offerings in growth segments of spine and orthopedics. The combined company’s differentiated technologies will include: the M6-C™artificial cervical disc, a next-generation artificial disc replacement alternative to spinal fusion; the FLASH™Navigation System with 7D Technology, which is the only approved image guidance system that utilizes a novel and proprietary camera-based technology and machine-vision algorithms; the Fitbone™platform, which includes the currently available intermedullary limb lengthening system; the under-development Fitspine™scoliosis solution; and a comprehensive offering of advanced interbody devices featuring WaveForm® 3D and NanoMetalene® with Reef Topography™ technologies.
- One of the industry’s broadest biologics and regenerative technology offerings. Together, the combined company’s biologics portfolio will represent one of the broadest offerings available, extending the new company’s reach to an even greater number of surgeons for use in spine and orthopedics procedures. These biologic solutions include the recently launched Virtuos™Lyograft, the first-of-its-kind, shelf-stable and complete autograft substitute; the market-leading Trinity™Elite allograft; the best-in-class OsteoStrand® Plus and OsteoSurge® 300 demineralized bone matrix (DBM) products with patented Accell® Bone Matrix, and the future commercialization of Novosis™, a next generation rh-BMP-2 technology via our recent license agreement with CGBio.The combined company’s regenerative technologies will include the CervicalStim™bone growth therapy device, the only FDA-approved PEMF system for cervical treatment; SpinalStim™for spine fusion; PhysioStim™for the treatment of nonunion fractures; and the recently launched AccelStim™bone healing therapy.
- Differentiated and synergistic enabling technologies.The combined company will have a complementary portfolio of technologies that enables it to service the full continuum of surgical care from preoperative planning through surgical navigation. Flagship enabling technologies include the unique FLASH™Navigation System with 7D Technology, which is designed to provide visibility during surgery to improve accuracy of screw placement and provide a cost-effective, rapid, radiation-free solution to surgical navigation, and the OrthoNext™ preoperative planning system.
- Premier offering in high-growth pediatrics market. The combined company will have a complementary portfolio of specialized hardware and enabling technologies, including specialized spine, limb deformity, limb reconstruction and software planning and imaging solutions, that enable it to service the full patient continuum of care for pediatric orthopedic surgeons. Currently an $800 million annual market, pediatrics is among the fastest growing markets in orthopedics.
- Strengthened commercial reach in the United States and internationally. With its broader product and services portfolio, increased resources and deep pipeline, the combined company will be able to attract and support larger, dedicated distribution partners. It will also be able to invest in direct sales representatives in select markets to engage even more surgeon users.
- Revenue synergies, cost savings and economies of scale. The companies have identified meaningful cross-selling revenue synergies as a result of cross-selling the complementary portfolios in the United States, the ability to sell SeaSpine’s biologics and 7D technology into Orthofix’s international established channels, the greater breadth of bag to support large distributor conversions and increased product offerings per procedure.In addition, the combination is expected to generate at least $40 million in annualized cost savings not including stock-based compensation within three years following the close of the transaction. Cost savings will be primarily from reductions in redundant overhead and public company costs as well as supply chain efficiencies. Working capital and capital expenditure efficiencies are expected to be driven through economies of scale via higher spinal implant set utilization.
- Strong financial profile with enhanced opportunities for investment. The transaction is expected to be accretive to Orthofix’s standalone adjusted EBITDA by the second full year after close and is expected to be accretive to our existing return on invested capital after fully realizing synergies, including cost savings. The combined company’s strong capital structure will allow it to self-fund certain investments intended to maximize growth potential, including organic and inorganic innovation initiatives, sales force expansion, and field inventory and instrumentation, without the need for equity financing.
Leadership and Headquarters
The combined company will be led by an experienced Board of Directors and leadership team that leverages the talent within both organizations.
Upon closing of the transaction, the combined company’s Board of Directors will consist of nine directors, with five designated by Orthofix, including Lead Independent Director, and four designated by SeaSpine.
Jon Serbousek will serve as Executive Chairman of the Board, and Keith Valentine will serve as President and Chief Executive Officer and member of the Board. The remainder of the combined company’s Board and leadership team will be named prior to closing and is expected to include representatives from both Orthofix and SeaSpine.
The combined company will be headquartered in Lewisville, Texas. This location will conduct general business, product development, medical education and manufacturing. The Company will retain primary offices in Carlsbad, CA, with a focus on spinal product innovation and surgeon education, and in Verona, Italy with an emphasis on product innovation, production, and medical education for Orthopedics. Current facilities in Irvine, CA, Toronto, Canada, Sunnyvale, CA, Wayne, PA, Olive Branch, MS, Maidenhead UK, Munich, Germany, Paris, France and Sao Paulo, Brazil will also be retained.
Timing and Approvals
The transaction is expected to close in the first quarter of 2023, subject to approval by both companies’ shareholders and customary closing conditions and regulatory approvals.
Perella Weinberg Partners LP is serving as financial advisor to Orthofix, and Hogan Lovells US LLP is serving as its legal counsel. Piper Sandler & Co. is serving as financial advisor to SeaSpine, and DLA Piper LLP is serving as its legal counsel.
Conference Call and Webcast
Orthofix and SeaSpine will host a joint conference call and webcast today at 8:00 a.m. ET to discuss the merger.
The conference call can be accessed by dialing +1 (833) 927-1758 within the U.S. and +1 (929) 526-1599 for all other locations. The confirmation code is 867247. Participants should dial in 10 minutes prior to the scheduled start time.
Orthofix Medical Inc. is a global medical device company with a spine and orthopedics focus. The Company’s mission is to deliver innovative, quality-driven solutions while partnering with health care professionals to improve patient mobility. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedics products are distributed in more than 60 countries via the Company’s sales representatives and distributors. For more information, please visit www.orthofix.com.
SeaSpine (www.seaspine.com) is a global medical technology company focused on the design, development, and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. SeaSpine’s complete procedural solutions feature its market-leading FLASH™ Navigation, a system designed to improve accuracy of screw placement and provide a cost-effective, rapid, radiation-free solution to surgical navigation, and a comprehensive portfolio of spinal implants and orthobiologics to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures on the lumbar, thoracic and cervical spine. With product development expertise in advanced optics, software, orthobiologic sciences and spinal implants, SeaSpine can offer its surgeon customers a complete solution to meet their patients’ evolving clinical needs. SeaSpine currently markets its products in the United States and in approximately 30 countries worldwide.