Teleflex recommits to takeovers

In a time of unpredictable demand for its products, the diversified medtech is unafraid to acquire.

Deals

Teleflex has, like many medtech companies, almost clawed its way out of the second-quarter mire. At $628m, its third-quarter revenues were still down year on year, but only slightly – whereas in the second quarter Covid-19-related lockdowns had caused its sales to slip 13%. 

And, like Exact Sciences earlier this week, Teleflex synchronised a takeover with its quarterly report. At $500m its purchase of the haemostatic device maker Z-Medica is not as large as that of Neotract in 2017 or Arrow International a decade earlier, but it shows that the serial acquirer is determined to buy in high-margin technologies even at an uncertain time. 

Teleflex bought Z-Medica from the private equity firm Linden Capital. Thetarget company makes devices to control haemorrhaging, variants of gauze impregnated with kaolin, a type of clay capable of absorbing liquid; Teleflex says the technology accelerates the patient’s natural clotting ability. The products are mostly used in trauma surgery and emergency medicine, as well as by the military and law enforcement.

Tuck-in

The deal looks like a sensible tuck-in from a strategic point of view. Z-Medica’s portfolio, and its call points, could be a natural fit alongside Teleflex's EZ-IO, a vascular access system used in emergency surgery and by the military, and EZPLAZ, a form of freeze-dried plasma reportedly used by the US Army, though it has yet to be approved by the FDA. 

The lion’s share – 80% – of Z-Medica’s sales come from the US, so there could be some geographical expansion opportunity. And the business has gross and operating margins of around 80% and 30% respectively, appealing to Teleflex’s stated goal of increasing profitability. Its adjusted net income in the third quarter was $131.2m.

The $500m up front could be followed by up to $25m in commercial milestones, and will be financed through Teleflex’s revolving credit facility, with the company saying long-term net debt would be maintained at around three times Ebitda. Z-Medical brings tax benefits worth around $40m, and the deal is set to close this year, contributing $60-70m of sales in fiscal 2021.

Teleflex is active in a wide range of segments from drug delivery to urology, and builds its diverse product ranges through acquisitions. Its largest deal remains the $2bn acquisition of Arrow International, which made catheter-based products for critical and cardiac care; this was the source of the EZ-IO device. Since then it has bought a further 17 companies, including two megadeals in 2017 (Serial acquirer Teleflex seeks deals both big and small, October 19, 2017).

Shopaholic: Teleflex's deal-making over the past five years
Date Target Value ($m) Focus
Oct 28, 2020 Z-Medica 525 General & plastic surgery; general hospital & healthcare supply; wound management
Oct 4, 2018 Essential Medical - Cardiology
Oct 2, 2017 Neotract 1,100 Urology; wound management
Apr 3, 2017 Pyng Medical 9 Anaesthesia & respiratory; drug delivery; general hospital & healthcare supply; obstetrics & gynaecology; orthopaedics
Feb 17, 2017 Vascular Solutions 1,000 Cardiology; diagnostic imaging; drug delivery; general & plastic surgery; general hospital & healthcare supply; orthopaedics; wound management
Jan 11, 2016 Nostix - Drug delivery
Dec 31, 2015 Truphatek International - Anaesthesia & respiratory; endoscopy
Source: EvaluateMedTech.

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