DEFM14A: Surmodics to be Acquired by GTCR Affiliate for $43.00 Per Share in Cash

Surmodics, Inc. has entered into a definitive agreement to be acquired by an entity indirectly controlled by GTCR LLC for $43.00 per share in cash.

Summary

• Surmodics, Inc. has agreed to be acquired by BCE Parent, LLC, an entity indirectly controlled by funds affiliated with GTCR LLC (GTCR).
• Each outstanding share of Surmodics common stock will be converted into the right to receive $43.00 in cash, without interest and less any applicable withholding taxes.
• The Surmodics board of directors unanimously approved the merger agreement and recommends that shareholders vote in favor of the proposal.
• A special meeting of shareholders will be held virtually on August 13, 2024, to consider and vote upon the merger agreement.
• Shareholder approval is required for the merger to be completed.
• The merger is expected to close in the second half of calendar year 2024.
• The total amount of funds necessary to consummate the merger and the related transactions will be funded through a combination of (1) up to $287.3 million of equity financing to be provided by the GTCR Funds and (2) up to $450 million of debt financing to be provided by a group of financial institutions.

Sentiment

Score: 7

Explanation: The document is generally positive due to the all-cash acquisition at a premium, but tempered by the risks and uncertainties inherent in the transaction and the limitations on remedies.

Positives

• The all-cash merger consideration provides certainty of value and liquidity to Surmodics shareholders.
• The merger consideration represents a significant premium over Surmodics' recent trading prices.
• The Surmodics board of directors believes the merger is more favorable than potential alternatives.
• The merger is not conditioned upon receipt of financing by Parent.
• GTCR Funds have agreed to guarantee the due and punctual payment and performance of Parent of the parent termination fee and the parent regulatory fee subject to a maximum aggregate liability amount of $53,170,000.

Negatives

• If the merger is not completed, shareholders will not receive any payment for their shares.
• The merger will result in Surmodics ceasing to be a publicly traded company.
• The exchange of common stock for cash will generally be a taxable transaction for U.S. holders.
• The merger agreement contains restrictions on Surmodics' ability to operate its business prior to closing.
• The merger agreement contains limitations on Surmodics' remedies if Parent fails to complete the merger.

Risks

• The merger may not be consummated within the anticipated time period, or at all.
• Surmodics may fail to obtain shareholder approval of the merger agreement.
• Regulatory approvals may not be secured.
• Debt or equity financing to be obtained by Parent may become unavailable.
• Termination of the merger agreement may have negative effects on Surmodics and its business.
• The announcement or pendency of the merger may disrupt Surmodics' business and operations.
• Litigation related to the merger may arise.
• The merger may involve unexpected costs, liabilities, or delays.

Future Outlook

The merger is expected to close in the second half of calendar year 2024, subject to shareholder and regulatory approvals and other customary closing conditions.

Management Comments

• Our board of directors unanimously recommends that you vote FOR each of the proposals to be considered at the special meeting, including approval of the merger agreement.
• Thank you for your continued support.

Industry Context

The document indicates GTCR is a leading private equity firm with a long track record of investment expertise across healthcare and healthcare technology, suggesting the acquisition aligns with industry trends of private equity investment in the medical device sector.

Comparison to Industry Standards

• The document includes a fairness opinion from Jefferies LLC, which considered comparable companies and transactions in the medical manufacturing industry.
• Comparable companies used in the analysis included Asahi Intecc Co., Ltd., Integer Holdings Corporation, Nolato AB (publ), Sotera Health Company, Tecan Group AG, and UFP Technologies, Inc.
• Precedent transactions analyzed included the acquisition of Pulse Technologies, Inc. by Integer Holdings Corporation and Paragon Medical Corp. by AMETEK, Inc.

Stakeholder Impact

• Shareholders will receive $43.00 per share in cash.
• Employees' compensation and benefits will be maintained for at least one year following the merger.
• The merger may affect relationships with customers, suppliers, and other business partners.

Next Steps

• Shareholders will vote on the merger agreement at a special meeting on August 13, 2024.
• The parties will work to obtain regulatory approvals.
• If approved, the merger is expected to close in the second half of calendar year 2024.

Key Dates

Keywords

merger, acquisition, Surmodics, GTCR, shareholders, agreement, financing, cash, subsidiary, board