Shares of medical device firm Wright Medical Group (WMGI
26.93, -1.04, -3.72%) have fallen to largely erase post-earnings gains on Monday
after the release of news that the company had entered into a definitive
agreement to acquire Cartiva, Inc., a private orthopaedic medical device
company focused on treatment of osteoarthritis of the great toe, for a total
price of $435 mln in cash.
One of the bigger draws to the Cartiva deal, according to Wright, is the fact that the deal is expected to be accretive to Wright's pro forma revenue growth rate, non-GAAP adj. EBITDA margin, non-GAAP EPS, and Cash Flow in 2019.
What’s more, Cartiva carries a “best-in-class” gross margin of ~90+% with current sales growth in excess of 50%. As such, the deal is expected to enhance Wright’s revenue growth; specifically, Wright expects full-year 2018 Cartiva revenues to be approximately $35 mln, which represents approximately 50% growth over 2017, with gross margins and adjusted EBITDA margins accretive to Wright.
So, assuming, then, a close of the transaction in 2018, Wright anticipates the deal to increase 2019 net sales by about $47 mln and non-GAAP adjusted EBITDA from continuing operations by around $20 mln, which the company anticipates will be approximately 100 basis points accretive to the company’s pro forma net sales growth rate (on a constant currency basis) and approximately 100 basis points accretive to non-GAAP adjusted EBITDA margin from continuing operations.
Based on the strong performance of the business in the third quarter to date, Wright also raised and narrowed its full-year 2018 net sales guidance, excluding the impact of the Cartiva acquisition to approximately $812-822 mln, from its previous guidance of approximately $808-820 mln.
The transaction will add a differentiated PMA-approved technology for a high-volume foot and ankle procedure and further accelerates growth opportunities in Wright’s global Extremities business.
Wright expects to update its guidance for full-year 2018 non-GAAP adjusted EBITDA from continuing operations on its third quarter 2018 earnings call, which is currently scheduled for November 7, 2018. Also, the company anticipates funding the purchase price through the sale of equity securities at some time prior to closing of the Cartiva transaction. Lastly, the Cartiva transaction is expected to close in the fourth quarter of 2018.
Shares largely erased multi-month post-earnings highs on Monday, bumping up against support in the 50-day simple moving average (26.21), trading down more than 8% from those multi-month highs.
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