Recently, Cynosure, Inc. , a developer of aesthetic treatment systems, entered into a definitive acquisition agreement with Palomar Medical Technologies Inc. , in which the former is going to take over the latter for $294 million in cash and stock.
Cynosure, which is looking forward to this acquisition, expects the inclusion of Palomar to be a strategic fit as the inclusion of Palomar will complement the company’s existing product line and enhance Cynosure’s customer base.
Accordingly, Cynosure expects the acquisition to further bolster the company’s sales and strengthen its worldwide distribution network. The acquisition will also add more than 40 patents in Cynosure’s portfolio, thereby boosting its intellectual property position.
As per the terms of the deal, Cynosure will issue 5.2 million shares and fund the cash of $147 million through existing cash balance. The company will be acquiring Palomar for $13.65 a share ($6.825 will be provided in cash and the balance through common stock).
We note the acquisition price reflects a a premium of 23% and 34% on Palomar’s average closing price and average enterprise value, respectively, since the announcement of Palomar's fiscal 2012 results (on Feb 7, 2013).,
Cynosure expects this acquisition to be accretive to its 2014 performance with the implementation of project synergies in the range of $8 million and $10 million by 2014. Post-acquisition, the cash balance of the company is expected to be around $87 million and it will remain debt-free.
These figures are calculated on an adjusted basis as of Dec 31, 2012. The board of directors of both the companies voted unanimously and the deal is expected to be completed by end of third quarter 2013.
Palomar has created a global footprint by producing products like Icon and Starlux laser and Intense Pulsed Light (IPL). Its recently introduced product Vectus Diode Laser has proved Palomar’s worldwide excellence. Palomar is dedicated toward improving patient care which is reflected in its products, with features like skin cooling, temperature control and energy delivery.
Currently, on a combined basis, Cynosure and Palomar have a large installed base of over 20,000 aesthetic laser systems with a distribution network across more than 100 countries worldwide. The collective revenue for both the companies in fiscal 2012 was $234 million of which 52% is attributable to North America while the rest came from the international markets.
Cynosure develops and sells non-invasive and minimal invasive products to rejuvenate skin, treat vascular and benign pigmented lesions, reduce cellulite, remove hair and treat onychomycosis. The company sells products in North America and international markets.
Earlier, in 2006, Cynosure had entered into a cross-agreement with Palomar under which Cynosure had the rights to sell Palomar products and in return royalty ranging 3.75%− 7.5% of net sales for Palomar.
Currently, Cynosure carries a Zacks Rank #3 (Hold). However, we are more positive about other stocks such as Rofin-Sinar Technologies Inc. , Cutera, Inc. all of which carry a Zacks Rank #2 (Buy) and are expected to do well.