Global medical services provider Teleflex Incorporated (TFX) recently inked a definitive agreement to sell its original equipment manufacturer (OEM) orthopedics business to Tecomet for $45.2 million in cash. The transaction, expected to close during the third quarter of 2012, is subject to standard closing conditions.
The core capabilities of the divested business include dental, spinal and small bone implant systems and implant insertion instruments, flat or anatomic plates, mono- and poly-axial screws, straight and pre-bent rods and connectors.
Teleflex’s OEM orthopedic business is inclusive of Beere Medical and SMD brand product lines. While Beere Medical is the world’s largest provider of custom surgical instruments for orthopedic and spinal procedures, SMD brand of product lines is the market leader in micro-machines. For future consolidated financial statements, the company will reclassify its OEM orthopedic business as discontinued operations.
The proceeds from the sale of the OEM orthopedic business coupled with Teleflex’s ability to generate sufficient cash flow from operations will allow it to exploit future growth opportunities. Per management, the divestiture of this business underlines its strategic plan to focus on branded products, new product introduction, and investment in innovative technologies to boost long run growth as well as drive margin expansion.
Revenues for OEM orthopedic business were $36 million in 2011. Management believes that despite improvement in performance, the business footing has not reached pre-recession levels. Teleflex Medical OEM division plans to focus on extending its TFX OEM and Deknatel brands, which are excluded from the deal.
Tecomet operates in a variety of segments for specialty markets such as orthopedic reconstruction, trauma, dental, spine, cardiovascular and radiography, among others. Charlesbank Capital Partners, a private equity firm and the majority owner of Tecomet arranged the finance for the transaction.
Management at Tecomet is enthused about the post-acquisition portfolio expansion. Furthermore, the company is set to benefit from the technical knowledge and skill-set inherent at Teleflex OEM orthopedic business unit.
Teleflex headquartered in Limerick, Pennsylvania, is a manufacturer and provider of medical devices used in critical care and surgery. Its move to divest OEM orthopedic along with the strategy of developing new, innovative products should help drive sales in the long run. Mesa Laboratories (MLAB) and Given Imaging (GIVN), which operates in similar business segments, are also making efforts to boost their top-line via new product introductions and acquisitions.
Teleflex currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.
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