CryoLife, Inc. (CRY - Free Report) recently entered into a definitive agreement to buy German-based JOTEC AG. JOTEC — a privately-held maker of technologically advanced endovascular stent grafts and cardiac and vascular surgical grafts focused on aortic repair. The company has been recording revenue CAGR of 17% over the last five years.
Under the financial terms of the agreement, CryoLife will pay an aggregate of up to $225 million for the deal, with around $168.75 million in cash and $56.25 million in shares of CryoLife’s common stock issued to JOTEC’s shareholders. The buyout is slated to complete later in 2017, subject to customary closing conditions.
Through this deal, CryoLife aims at expanding the existing portfolio with products focused on aortic surgery, thereby solidifying its footprint in the fast-growing endovascular surgical market.
Per management, this deal will help CryoLife diversify its business by gaining access to the $2-billion global market for stent grafts used in endovascular and open repair of aortic diseases. The market is projected to value around $2.5 billion by 2021. Interestingly, CryoLife aims at delivering consistent, high single-digit revenue growth through this deal.
The deal is also in line with the company’s strategy to directly sell by eliminating distributors in Europe while creating cross-selling opportunities for the company’s product portfolios. In the last reported quarter, CryoLife began the process of direct selling in Canada, Belgium, the Netherlands and Luxembourg, expanding direct operations in Europe.
At the same time, management expects the newly-added products to continue to post double-digit growth outside the United States for at least the next five years. Moreover, the deal is expected to prove accretive to the company’s non-GAAP EPS at a CAGR of not less than 20% over the next five years, while contributing to gross and operating margin.
CryoLife expects to gain access to the $1.2-billion U.S. stent graft market, which is projected to value roughly $1.5 billion by 2021 through the newly gained, highly competitive product portfolio and advanced research and development platform. Thus, the company expects this deal to drive growth through 2018 as well.
CryoLife also provided a sneak peek into its preliminary third-quarter results. The company has recorded revenues of $44.0 million. This considers a negative impact of around $1 million from hurricanes, delay in receipt of re-certification of Ascending Aortic Prosthesis, reversal of around $1.1 million of recorded revenues on repurchase of some inventory from third-party distributors in order to sell directly.
We believe unhealthy lifestyle, favorable demographics, rising expenditure on healthcare by government and technological developments will continue to drive growth in the aortic aneurysm market. This fact is further substantiated by a Research and Markets report published by Nasdaq. Per the report, the global aortic aneurysm market is estimated to witness a CAGR of 6.6% between 2017 and 2023. Thus, this acquisition deal is expected to boost the top line of CryoLife.
Share Price Performance
Over the last six months, CryoLife has been trading above the broader industry. The stock has gained 35.1%, compared with the broader industry’s 14.4% rise.
Zacks Rank & Key Picks
CryoLife currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the medical sector are QIAGEN (QGEN - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Thermo Fisher Scientific Inc. (TMO - Free Report) . QIAGEN, IDEXX Laboratories and Thermo Fisher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
QIAGEN has a long-term expected earnings growth rate of 13.1%. The stock has rallied roughly 31.9% last year.
IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained 42.8% last year.
Thermo Fisher has a long-term expected earnings growth rate of 11.7%. The stock has gained 27.2% last year.
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