Aesthetic medical device maker Thermage (Hayward, California) said it would buy privately held Reliant Technologies (Mountain View, California), a provider of cosmetic laser skin treatment, for about $95 million in cash and stock.
Reliant makes the Fraxel laser systems for treatment of fine lines, scars and skin.
Thermage will pay $25 million in stock and 23.6 million shares of its stock in the deal. It will also take on 7 million in debt and will loan Reliant $5 million.
In a conference call, the companies said that the proposed transaction would combine market leaders in skin tightening and skin resurfacing, the two fastest-growing segments of the industry. The companies generated nearly $137 million in revenue on a combined basis for the 12 months ended March 31. The transaction is expected to create cross-selling opportunities in both domestic and international markets.
Stephen Fanning, president/CEO/chairman of Thermage, said the combined companies expect to realize annualized cost savings from the combination of about $14 million and the transaction is expected to be accretive to current consensus analysts' estimates for 2009 of 26 cents per diluted share. Second-quarter revenue is expected to be between $17.7 million and $17.9 million.
"This proposed transaction combines two of the most dynamic companies in our industry and creates a strong growth vehicle for our shareholders, customers and employees," said Fanning. "Thermage and Reliant Technologies each have highly recognized and valued brand names in our industry. By combining our companies, we will be extremely well positioned to develop significant cross-selling opportunities as well as benefit from two business models that have significant consumable revenue. As a result, we expect the combination of the two companies to be accretive to our existing shareholders."
Fanning said that the proposed combination "will combine market leaders in skin tightening and skin resurfacing, which are the two fastest-growing segments of the aesthetic device industry."
Fanning said that the "significant efficiencies" that are expected to be realized by the companies through their merger include a reduction of about 15% in headcount in the first six months after the transaction is completed and leveraging the companies' call points and their combined purchasing and manufacturing operations.
The boards of both companies have approved the proposed transaction, which is subject to customary closing conditions, including approval by the stockholders of Thermage. The stockholders of Reliant already have approved the transaction by written consent.
Certain Thermage stockholders, holding more than 33% of the outstanding shares of the company, have agreed to vote in favor of the transaction. The proposed transaction is currently expected to close during 4Q08.
Once the transaction closes, the combined company will be led by Fanning, who will keep his current titles. Jack Glenn, currently CFO of Thermage, will serve as the CFO of the combined company. Len DeBenedictis, PhD, currently EVP and CTO of Reliant Technologies, will serve as CTO of the combined company. Clint Carnell, currently COO of Thermage, will serve as COO of the combined firm.
The six directors now on the Thermage board will be joined by three more chosen by Reliant's board.
The combined companies will operate as Thermage and will be headquartered in Hayward,
"This proposed combination brings together two companies with premier technologies and market positions in their respective fields and creates a company with significantly more potential than either company can realize on its own," said Eric Stang, president/CEO of Reliant Technologies. "Through this combination, Thermage and Reliant Technologies are leading the way toward industry consolidation and establishing a stronger company capable of continued industry leadership."
Reliant generated about $72.5 million in revenue during the 12 months ended March 31, a 14% increase over the revenue generated during the comparable 12 months ended March 31, 2007. About 20% of its last 12-month revenues was generated from sales of its disposable tips. Roughly 71% of Thermage's revenue during the 12 months ended March 31 was from sales of disposable tips and other consumables.
On a combined basis, Thermage and Reliant generated about 44% of their total revenue from consumables during the 12 months ended March 31.
"Combining with another market leader, a pioneer in the space of fractional skin resurfacing, improves our ability to leverage our current call point," Fanning said. "Our products are complementary and are often used together."
He added, "The combination of our technologies offers patients and physicians a more complete anti-aging solution. In addition to leveraging our current call point, the combination provides compelling opportunities to leverage our marketing resources targeting both physicians and consumers."
Fanning said the combined company will have one of the largest U.S. sales forces in the industry and an extensive international distribution network. "Our combined distribution strength will provide us with the ability to place systems with new customers, as well as drive sales of treatment tips to a worldwide installed base of more than 4,000 systems," he said.