Tornier’s Acquisition Of OrthoHelix Results In Further Dilution

Tornier NV (TRNX) announced on Friday that it will acquire OrthoHelix Surgical Designs, in a deal valuing the firm at $135 million. Shares in Tornier ended the day with gains of 1.7%.

The Deal

Tornier announced that it will acquire OrthoHelix Surgical Designs, a global medical device company focused on providing surgical solutions to orthopedic extremity specialists. Tornier will pay $100 million in cash and $35 million in its own stock to acquire OrthoHelix. Tornier will make possible milestone payments in the coming two years.

OrthoHelix is a medical device company developing implants and instruments used for small bone reconstructive surgery. The acquisition helps Tornier in getting more traction with lower extremity surgeons who focus on feet and ankles.

CEO Douglas Kohrs commented on the deal:

We are pleased to welcome the employees, surgeon advisors, and distribution partners of OrthoHelix to Tornier. OrthoHelix’s innovative technology, products and surgeon focused culture will help us to take our Specialists Servings Specialists strategy to the next level.

For its calendar year of 2012, OrthoHelix is expected to generate sales of $29 million, up 30% compared to 2011. The company expects to generate gross profit margins exceeding 80% and positive EBITDA. The transaction values OrthoHelix at 4.7 times annual revenues. This excludes the possible additional milestone payments in the coming two years.

The acquisition will be financed with $35 million in stock and $100 million in cash. The deal will be financed with cash at hand and borrowings. The acquisition is dilutive to 2013’s earnings per share, and accretive to earnings per share in 2014.

The company continues to operate under its own name. Its 80 dedicated employees will continue to be based in Medina, Ohio.

The transaction is subject to regulatory approval.


For the full year of its 2012, Tornier anticipates constant currency sales between $277-$283 million. This represents a 6-8% growth compared to 2011. This excludes the impact of the acquisition of OrthoHelix.

Based on actual currency rates, sales are expected to come in between $267-$273 million. Adjusted full year EBITDA is expected to come in between $33-$37 million, up 15-30% compared to 2011.

For the third quarter, Tornier anticipates sales of $57-$59 million, down 1% to 2.5% on the year. EBITDA is expected to come in at $4.5-$6.0 million.


Tornier ended its second quarter with $61 million in cash and equivalents. The company operates with $43 million in short and long term debt, for a net cash position of $18 million.

For the first six months of 2012, revenues came in at $140.5 million. The company net lost $5.3 million, or $0.13 per share.

Currently, Tornier is valued at $712 million, which values the operating assets at $694 million. Based on the full year outlook, the company is valued at 2.5 times annual revenues and 20 times annual EBITDA.

Investment Thesis

Year to date, shares of Tornier trade flat. Shares peaked at $26 by March of this year, but fell towards lows of the year around $18 per share at the moment.

Over the past year, Tornier has aggressively expanded its revenues. Revenues rose from $177 million in 2008, towards an expected $270 million in 2012. The company reported losses during each year, and significant dilution has taken place. The number of shares outstanding rose by almost 60% during that time period, to 39 million shares outstanding.

The acquisition of OrthoHelix Surgical Designs will boost annual revenues by roughly 10%. However, financing the deal will increase dilution for Tornier’s shareholders. It will also put pressure on the strength of the balance sheet. The company is expected to lose money in the near future, and shareholders should expect future dilution.

I remain on the sidelines. I find it difficult making a fair estimate of the earnings capacity of the company, or the timeline when the company turns to profitability. Yet I don’t find the company an appealing short given the possibilities of a take-out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


Josh Sandberg

Josh Sandberg is the President of Ortho Spine Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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