Thursday, July 8, 2010

K2M Acquired?

TSB has received numerous e-mails within the last 24 hours regarding the acquisition of K2M by Welsh, Carson, Anderson and Stowe for an undisclosed sum. WCAS has been touted as the largest and most successful PE firm that focuses on information and business services and healthcare. WCAS manages an estimated $20 billion.

TSB wants to know what our eyes and ears on the Street have heard. If true, this will be the biggest news and acquisition in a market that has been downgraded in terms of growth. So will WCAS be a winner? Will they be able to sustain marketshare considering how many surgeons that use K2M had some vested interest in this venture. Is the industry seeing a shift in the type of companies that are buying into spine? TSB wants to know what our readers think?

32 comments:

  1. Here is a link to the story.
    http://www.pehub.com/76570/welsh-carson-buys-k2m/

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  2. K2M has a press release out as well.

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  3. So fellow readers, what was more exciting than being held hostage by LeBron James or reading the transmission by permission regarding K2M? Does this mean that the company will now be poised for a future IPO? Does it mean they will have more capital to bring more surgeons on board as consultants? Was this a great investment? Or, is WCAS rolling the dice? Will this accelerate K2's transition from independent distributor to direct sales model? I don't know but I'm just a soldier, what do our readers think?

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  4. We waited this long for the SNN deal to fall through and a quick investment banker prop up. I'm sure we will have to work harder to make the deal work for ching in our pocket. Whos's making the ching in this deal? IPO on the way. Have the times changed or what? What happened to the days when my pals at MDT pulled off deals of $4B for Kyphon. Hope there's nothing hidden under any rocks in Leesburg.

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  5. In today's economic climate TSB doesn't see an IPO, but, I did say "future IPO.". That could be two years away. With WCAS on board, there will be a new sheriff in town, therefore, there will be pressure to develop new R&D, sales and marketing strategies. Investing capital is much different than running a company and developing product. Considering that the Street and every other analyst have lowered the guidance for our industry it will be interesting to see how the culture and expectations change at the summit with an aggressive owner. Soon enough, the industry will find out whether there truly is anything hidden under the rocks in Leesburg.

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  6. We will be seeing more deals like this. Profitable spine companies are a great deal right now. Smart money can get a very high margin business in a growing market for a reasonable multiple. How many other opportunities are there like that out there?

    The top 5 had better wake up and think about jumping back into the acquisition game before all the good ones are taken. It would be better for them to buy now and integrate a small competitor then to let private equity turn a small competitor into a big one with a major cash infusion/IPO.

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  7. 5:28am.....respectfully, I think you are rumplestiltsken (?). The top 5 are trying to dam the leaks as their players jump from one to another company or out of the industry. Very high margin business? Granted, before. Not what it crazily became and never to be again. This was a smart move by the private equity and it will continue. They will be very careful and share that risk. JNJ has got their recall, MDT has the revolving door, SYK...well you know, SYN has Weiss...did he go to jail yet, NUVA has been quiet...hmmm.. Well exciting to watch and learn and play and keep up the chime TSB.

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  8. My sense is that 2 positive things will happen:

    1) K2M will continue it's growth with no great concern about the availability of Growth capital

    2) This event will provide K2M the opportunity to purge the physician ownership issues that probably quiered their deal with S+N. Providing a clean start and good path to a future IPO.

    .... but I could be wrong.

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  9. 6:38... in the eyes of private equity spine is a VERY high margin business. Its true that the margins are not as high as they were in the glory days, but everyone knew that wasn't sustainable.

    Remember that private equity is comparing spine margins to those of everyday industries -most of whom would kill for the gross margins that spine sees even on discounted contracts.

    The average gross margin of the S&P 500 is about 40%. ATEC is probably on the lower end of the spine range at 60%, NUVA at the higher end is 77%. These are attractive numbers in anyone's book.

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  10. What JNJ recall?? I thought this was a spine blog?

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  11. I could be wrong but I don't think K2M is in the business of paying for surgeons to be consultants. Not saying they won't with this new capital, but up to this point they seem to have played their hand as relationship builders and not relationship purchasers.

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  12. MORE MONEY SO K2M CAN SIGN CAN SIGN MORE CONSULTANTS... DUH...

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  13. K2M is well known for it's surgeon investor deals, always liked going into meet with these docs and them telling me, "I like the product but I would have a conflict of interest using this." K2M does have some good, well engineered products but fairly limited to those surgeons that did fellowships J. Hopkins under Kostuik. Fairly me-too portfolio.
    My question comes down to if these surgeon-investors finally get their big pay-day? Will the surgeons still have incentive to utilize these products or will they be free to test out other spinal companies? Anonymous wants to know what TSB readers think.

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  14. Any idea what they paid? Who thinks it was over $300MM?

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  15. Must be around $500m

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  16. I heard it was north of $500MM

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  17. I would be shocked if the valuation was 500M. From what I've seen their sales were in the 80-100M range. Since this was a private equity transaction, not a strategic acquisition, the multiple was probably pretty modest.

    I think 200-250M seems to be in the ballpark. I would also bet that a good chunk of that will be paid as earn-outs or forward equity just to make sure their business model holds up under the new ownership.

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  18. If sales are estimated at $70 million north of $500 is ridiculous, if so, take the money and run

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  19. Have you guys seen the flashy new demo video K2M has posted on its website? Granted, it's a bit cheesy, but still pretty cool. Reminds me of the "direct-to-consumer" advertising pharma has been using for years. Is this the way the industry is heading?

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  20. Mr. Major must have a hot-tub time machine. Good for him!

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  21. marketing is second to none. product very good. management team very good for the industry. Problem-too late...

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  22. what is k2m? is that a type of bicycle?

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  23. The K2 is the second highest mountain on earth.

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  24. So what is the prognosis? Is K2M pulling themselves out of the myre of mediocrity and into the ranks of the big players in the spine game? I think everyone would agree that they are in a far better position than either Lanx or Globus (who probably compare the best size-wise).

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  25. Spine Guru, sorry to burst your bubble but K2M is actually quite late to this animation game. Ghost productions has been doing this stellar work for a number of device companies for years already (http://www.ghostproductions.com).

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  26. Speaking of that website, I'm thinking that its time for them to take down the Biomaterials portion on the product portfolio. It has been blank for as long as I can remember. You can't grow in the future as a spine company without some initiatives in that area, what gives??

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  27. Any predictions for the future of Spine Wave?

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