DEFA14A: Surmodics to be Acquired by GTCR for $627 Million

Surmodics, Inc. has entered into a definitive agreement to be acquired by GTCR for $43.00 per share in cash, representing an approximate equity value of $627 million.

Summary

• Surmodics, Inc. has agreed to be acquired by GTCR, a private equity firm, for $43.00 per share in cash.
• The total equity valuation is approximately $627 million.
• The acquisition price represents a 41.1% premium to Surmodics' 30-trading day volume-weighted average closing price through May 28, 2024.
• The Surmodics Board of Directors has unanimously approved the transaction and recommends that stockholders vote in favor.
• The transaction is expected to close in the second half of calendar year 2024, pending customary closing conditions, shareholder approval, and regulatory approval.
• GTCR will finance the transaction through a combination of committed equity and debt financing.
• Upon completion, Surmodics will become a privately held company, and its stock will be delisted from The Nasdaq Stock Exchange.

Sentiment

Score: 8

Explanation: The sentiment is positive due to the significant premium offered to shareholders and the expectation of long-term growth and value creation. The deal is likely to be well-received by investors.

Positives

• Surmodics shareholders will receive a substantial premium for their shares.
• GTCR's expertise in the healthcare sector is expected to benefit Surmodics.
• The acquisition will allow Surmodics to continue delivering benefits for physicians, patients, and customers.
• The transaction provides Surmodics with long-term growth and value creation opportunities.

Negatives

• The company will be delisted from the Nasdaq Stock Exchange.

Risks

• The transaction is subject to customary closing conditions, including shareholder and regulatory approvals, and may not be completed.
• There are risks related to the consummation of the Merger, including the risks that (a) the Merger may not be consummated within the anticipated time period, or at all, (b) the parties may fail to obtain shareholder approval of the Merger Agreement, (c) the parties may fail to secure the termination or expiration of any waiting period applicable under the HSR Act, (d) other conditions to the consummation of the Merger under the Merger Agreement may not be satisfied, (e) all or part of Parent's financing may not become available, and (f) the significant limitations on remedies contained in the Merger Agreement may limit or entirely prevent the Company from specifically enforcing Parent's obligations under the Merger Agreement or recovering damages for any breach by Parent.
• The effects that any termination of the Merger Agreement may have on the Company or its business, including the risks that (a) the Company's stock price may decline significantly if the Merger is not completed, (b) the Merger Agreement may be terminated in circumstances requiring the Company to pay Parent a termination fee of $20,380,000, or (c) the circumstances of the termination, including the possible imposition of a 12-month tail period during which the termination fee could be payable upon certain subsequent transactions, may have a chilling effect on alternatives to the Merger.
• The effects that the announcement or pendency of the Merger may have on the Company and its business, including the risks that as a result (a) the Company's business, operating results or stock price may suffer, (b) the Company's current plans and operations may be disrupted, (c) the Company's ability to retain or recruit key employees may be adversely affected, (d) the Company's business relationships (including, customers, franchisees and suppliers) may be adversely affected, or (e) the Company's management's or employees' attention may be diverted from other important matters.
• The effect of limitations that the Merger Agreement places on the Company's ability to operate its business, return capital to shareholders or engage in alternative transactions.
• The nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against the Company and others.
• The risk that the Merger and related transactions may involve unexpected costs, liabilities or delays.
• Other economic, business, competitive, legal, regulatory, and/or tax factors.
• Other factors described under the heading Risk Factors in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023, as updated or supplemented by subsequent reports that the Company has filed or files with the SEC.

Future Outlook

The transaction is expected to close in the second half of calendar year 2024, subject to customary closing conditions, including approval by Surmodics shareholders and required regulatory approval.

Management Comments

• Gary Maharaj, President and CEO of Surmodics, Inc., stated that the transaction enables Surmodics shareholders to realize immediate value creation with a substantial premium.
• Sean Cunningham, Managing Director and Head of Healthcare at GTCR, stated that Surmodics is well-positioned for attractive, long-term growth and value creation.

Industry Context

The acquisition of Surmodics by GTCR reflects the ongoing trend of private equity firms investing in the healthcare and medical device industries. GTCR's expertise in the healthcare sector suggests a strategic move to leverage Surmodics' technologies and customer relationships for long-term growth.

Comparison to Industry Standards

• Comparable companies in the medical device and technology space, such as Medtronic, Boston Scientific, and Abbott Laboratories, often trade at multiples of revenue and EBITDA.
• The 41.1% premium offered by GTCR is within the typical range for acquisitions in the healthcare sector, which often see premiums between 30% and 50%.
• Similar transactions in the medical device industry include the acquisition of Spectranetics by Philips for approximately $2.2 billion, and the acquisition of Volcano Corporation by Philips for approximately $1.2 billion.
• GTCR's investment aligns with the trend of private equity firms seeking to capitalize on the growth potential of specialized medical technology companies.

Corporate Governance

Legal Proceedings

• The document mentions the risk of pending and future litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against Surmodics and others.

Stakeholder Impact

• Shareholders will receive a premium for their shares.
• Employees face uncertainty regarding their future roles and responsibilities post-acquisition.
• Customers and suppliers may experience changes in their relationships with Surmodics.
• The acquisition could lead to changes in the company's operations and strategic direction.

Next Steps

• Surmodics will file a proxy statement with the SEC.
• Surmodics will mail the definitive proxy statement and a proxy card to each shareholder.
• Surmodics will hold a special meeting of shareholders to vote on the transaction.
• The parties will seek required regulatory approvals.
• The transaction is expected to close in the second half of calendar year 2024.

Key Dates

Keywords

acquisition, GTCR, Surmodics, merger, shareholders, private equity, healthcare, transaction