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Globus Medical closed its acquisition of Branch Medical Group (BMG), a transaction added to a short list of recent OEM purchases of partners. The initial price of $52.9 million was finalized at $57 million in cash, $5.3 million in deferred consideration and an estimated $0.9 million payable upon finalization of closing adjustments. An amount payable to BMG on the date of acquisition of $5.2 million was also settled in connection with the acquisition. The final purchase price was $68.4 million.
Globus and Branch, neighbors in southeast Pennsylvania, have worked together for a decade.
• Branch became a Globus supplier in 2005.
• Globus management and insiders owned 49 percent of Branch prior to the acquisition.
• Globus uses Branch to manufacture about 25 percent of its products—a number that management expects to double over the
next three to four years.
• Branch, which achieved $23.3 million in revenue and $9.1 million in adjusted EBITDA in 2014, booked 94 percent of its
sales from Globus.
Analysts at Canaccord Genuity noted that the acquisition favorably positions Globus to realize gross profit leverage, and the transaction offered insight on the operating and manufacturing profile between the two.
“Bearish investors have historically pointed to the BMG related-party relationship as one of the main reasons for Globus’s best-in-class margin profile, i.e. investors speculated that Globus used its relationship with BMG to secure very attractive manufacturing terms (low inventory costs),” Canaccord Genuity wrote in its analysis of the merger. “That said, $9.1M in EBITDA for 2014 equates to a margin profile of 39 percent, which is very high in the contract manufacturing industry, and therefore should put an end to investor speculation.”
The BMG acquisition comes on the heels of Globus’ purchases of Transplant Technologies of Texas and Excelsius Surgical in 2014. Globus achieved 2014 revenue of $474.4 million, an increase of 9 percent over 2013, and has released 2015 guidance of $510 million in revenue.
Overall orthopaedic industry consolidation has kept pace with the first half of 2014, as OEMs buy OEMs, suppliers buy suppliers and partners buy partners. In the first two quarters of 2015, Smith & Nephew acquired EuroCiencia Colombia, its sole Colombian distributor of reconstruction, trauma and sports medicine products since 2006; Exactech acquired BlueOrtho SAS, the company that helped develop the ExactechGPS® Guided Personalized Surgery system and McGinley Orthopaedic Innovation purchased its supplier partner, DS Manufacturing.
Further, since BONEZONE’s March update on supplier acquisitions, Precision Engineered Products (PEP) acquired Trigon and Swedish-based Elos acquired Memphis-based Onyx Medical.
