Smith & Nephew has announced the execution of a definitive agreement to acquire medical device company ArthroCare for $48.25 per ArthroCare share in cash, a total consideration of approximately $1.7bn and an enterprise value of $1.5bn.
Smith & Nephew CEO Olivier Bohuon noted this is a compelling opportunity to add ArthroCare’s technology and highly complementary products to further strengthen our sports medicine business.
"Together, we will be able to generate significant additional revenue from the more comprehensive portfolio, combined sales force and Smith & Nephew’s global footprint. With this transaction, we are again accelerating our strategy to rebalance Smith & Nephew towards higher growth," Bohuon added.
The purchase price represents a 20% premium over the 90-day volume weighted average price of ArthroCare’s shares prior to this announcement. It represents a multiple of 15.7 times EV/adjusted 2012 EBITDA.
The acquisition will be subject to customary conditions, including a vote of ArthroCare’s shareholders and governmental clearances. Pending the satisfaction of such customary conditions, Smith & Nephew anticipates closing the transaction in mid-2014. ArthroCare will be integrated swiftly to minimize disruption to customers.
ArthroCare president and CEO David Fitzgerald noted the company and Smith & Nephew know each other well from its licensing and supply arrangements, and this is a natural transaction for both companies.
"The Board believes that this transaction is in the best interest of our shareholders," Fitzgerald added.
One Equity Partners, the largest shareholder with convertible preferred shares equivalent to 17% of the equity, has committed to vote its shares in support of the transaction, subject to customary conditions. The board of ArthroCare has recommended the transaction.
The purchase price of $48.25 per ArthroCare share, or total consideration of $1.7bn (enterprise value of $1.5bn net of cash in ArthroCare) will be financed from Smith & Nephew’s debt facilities and cash balances, including the existing $1bn revolving credit facility and a new two-year $1.4bn term loan facility.
The term loan has been underwritten by Barclays and J.P. Morgan.
Smith & Nephew has completed $226m of its $300m share buy-back program. In light of this acquisition Smith & Nephew has suspended this program.
At the end of 2014 the company expects Smith & Nephew’s net debt to EBITDA to be below 1.5 times.