The Deal of the Week (ended Sept. 8, 2017) is also the largest announced in the holiday-shortened work week. Teleflex Incorporated (NYSE: TFX) announced its first acquisition this year, paying $725 million upfront for privately held NeoTract, Inc. It marks a new focus for the medical device maker, whose previous buyouts concentrated in cardiovascular and microlaparoscopy surgical technologies.
NeoTract is a medical device maker that has developed and commercialized the FDA-cleared UroLift System, a novel, minimally invasive technology for treating lower urinary tract symptoms due to benign prostatic hyperplasia, or BPH.
Anyone who watches professional sports televised on Sunday afternoons is familiar with the ubiquitous ads targeting older men who “have to go often,” a symptom of BPH. That market is estimated to be upwards of $30 billion.
Terms of the deal include $725 million in cash upfront, and up to an additional $375 million upon the achievement of certain milestones related to sales through the end of 2020. We don’t count on milestones to be paid in the future, which is why you’ve read headlines touting the “up to $1.1 billion” price.
It also makes for a rational 6.3x revenue multiple on this deal, based on estimated 2017 revenue of $115 million. That’s about the highest multiple the company’s paid since 2002, according to our database.
The deal, announced on September 5, 2017, sent TFX stock up about 10% by the end of the week, from $210.35 on Tuesday to the $230.00-plus range. Since January 1, 2017, TFX is up about 45% this year. The stock’s nadir came a year to the day of the NeoTract announcement (coincidence?), landing at $142.03 on September 5, 2016.
Teleflex’ M&A Record
Since 2012, when Teleflex announced five deals (for a combined $321 million), acquisition activity has been much more measured. Three more deals were announced in 2013, and that was enough assimilation and integration to keep management busy until 2016.
In January 2016, the company acquired Nostix, LLC for an undisclosed price. Nostix had developed innovative tip confirmation systems used to increase the accuracy of vascular access device placement. The big announcement came in December of that year, when Teleflex took Vascular Solutions, Inc. (NASDAQ: VASC) private for approximately $1.0 billion (6.3x revenue/46.3x EBITDA).
Onward and Upward
This push into a new line of surgical business is a good turn for Teleflex, as its largest rival, Medtronic plc (NYSE: MDT) maintains a market cap of $110.9 billion, to its $10.4 billion market cap. Teleflex projects 2018 revenues to grow 40% from NeoTract’s 2017 estimates of $115 million to $120 million. We’ll be watching.