Alphatec to Acquire EOS imaging for $122 Million

Alphatec Holdings Inc., a medical device company dedicated to revolutionizing the approach to spine surgery, has entered into an agreement to acquire EOS imaging SA, for a purchase price of up to $88 million, plus debt retirement of $33.9 million, in a combination of cash and equity.
 
EOS imaging is a developer of outcome-improving orthopedic medical imaging and software solutions, and is globally recognized for its rapid, low dose, biplanar full-body imaging and 3D modeling capabilities. The EOS technology informs the entire surgical process by capturing a calibrated, full-body image in a standing (weight-bearing) position, enabling precise measurement of anatomical angles and dimensions. The resulting imaging drives a more accurate understanding of patient alignment during diagnosis, elevates the likelihood of surgical goal fulfillment by integrating a fully informed plan into surgery, and enables a post-operative assessment against the original surgical plan.
 
“This is a monumental transaction for ATEC,” said Pat Miles, chairman and CEO. “While spine’s large players are investing in enabling technologies, we are thinking differently. We created a conduit to deliver information into the operating room with AlphaInformatiX. This transaction will integrate spine imaging and anatomical modeling onto the platform to actually inform the operative experience. By pairing ATEC’s approach-based solutions with imaging founded on Nobel Prize-winning technology, we expect to significantly increase demand for ATEC hardware and EOS systems and create a formidable competitive advantage.”
 
“EOS is a fabulous, game-changing technology that has unquestionably improved the treatment of children, adolescents and adults with spinal deformity,” said Dr. Christopher Shaffrey, M.D., chief of Spinal Surgery and Spine Care at Duke University Medical Center.
 
Once closed, the transaction is expected to immediately expand ATEC’s revenue base through the addition of EOS’s revenue run rate, and create significant pull-through and cross-selling opportunities via an expanded sales network and combined customer base. The addition of EOS imaging will advance ATEC’s AlphaInformatiX platform providing capabilities in surgical planning, patient-specific implants, intraoperative alignment reconciliation, and other intraoperative functionalities resulting in a platform distinctively equipped to address the requirements of spine surgery.
 
The company expects the acquisition to be accretive to revenue, revenue growth, adjusted EBITDA and free cash flow in the first full year of operations following the transaction close.
 
With more than 500 scientific articles published in leading journals, EOS’s technology has achieved widespread support and endorsement from the academic community and thought leaders worldwide. EOS’s installed base of over 350 imaging systems encompasses nine of the top 10 U.S. hospitals, and 20 of the top 251. Additionally, EOS’s international footprint will expedite ATEC’s future ability to enter and penetrate key markets outside of the United States.
 
“We are very enthusiastic about the opportunity to join the complementary strengths and know-how of EOS imaging and ATEC,” said Mike Lobinsky, CEO of EOS imaging. “I have no doubt that our organizations will be able to quickly create a highly differentiated end-to-end offering that will accelerate growth in the U.S. in the short term, while we continue to expand internationally, paving the way for the future global growth of the combined entity.”
 
Utilizing advanced predictive analytics, EOS technology is uniquely capable of correlating preoperative and postoperative imaging to assure, from the operating room, the achievement of alignment, the most prognostic factor of long-term successful surgical outcomes. Compared to the conventional spine-imaging modalities, X-ray and computed tomography, the EOS systems significantly reduce radiation doses and exam times, producing unstitched, full-body, biplanar, high-quality images at lower cost.
 
Key Features of the EOS imaging Portfolio

• Standing full-body assessment. Head to toe biplanar exams in the weight-bearing position for accurate assessment of factors causing pain and disability to better guide treatment and surgical decisions. Surgical planning from a standing position enables alignment parameters that more closely match functional posture.
• Reduced radiation exposure. Driven by the ALARA* principle, the EOS or EOSedge exam delivers a minimal dose of radiation to reduce the long term impact of repeated imaging.
• Precise 3D measurements. Patient-specific measurements, dimensions and angles to make informed clinical decisions at all stages of care.
• EOSapps and EOSlink for surgical planning and OR integration. Pre-operative planning software to anticipate surgical results and select components for spine surgery; pairs with surgical technologies for precise execution with EOSlink

 
The Boards of Directors of both ATEC and EOS have approved the execution of a tender offer agreement, through which ATEC will launch a tender offer for all of the issued and outstanding shares and convertible notes of EOS imaging for a total purchase price of up to $122 million. The offer will consist of a cash tender offer for a price of 2.80 euros per EOS share, or at the option of each EOS shareholder, an exchange tender offer whereby each EOS shareholder will receive $0.50 ATEC common shares per EOS share. The cash offer price represents a premium of 64 percent based on the closing price of EOS shares on Feb. 27, and of 43 percent, 26 percent, and 58 percent over the volume-weighted average share price of EOS over the last one, three and six month(s), respectively, preceding this date.
 
The exchange offer ratio reflects a premium of 67 percent on EOS’ closing share price on Feb. 27, calculated using ATEC’s share price and the euros to U.S. dollars exchange rate as of market close on Feb. 27. The exchange offer reflects a premium of 53 percent, 41 percent, and 64 percent calculated using the volume-weighted average share prices of EOS and ATEC over the last one, three and six month(s), respectively and the euros to U.S. dollars exchange rate as of market close on Feb. 27.
 
Each EOS shareholder will be entitled to elect between the cash offer and the exchange offer, subject to adjustments that will ensure that, in the aggregate, the number of common shares issued by ATEC shall not exceed 20 percent of ATEC’s current outstanding shares of common stock (or approximately 12.5 million shares based upon the current number of shares of common stock outstanding). Holders of approximately 23 percent of EOS’s outstanding common shares have entered into agreements to tender for ATEC shares under the Exchange Offer, representing approximately 17.4 million euros (or approximately $19.1 million) of the total purchase price, subject to certain conditions.
 
The offer will also target all outstanding EOS convertible notes. The holders of the notes would receive either 7.01 euros (or approximately $7.71) per EOS OCEANE as part of the cash offer.
 
It is expected that the offer will be filed with the French Financial Markets Authority (Autorité des marchés financiers) in late April. The transaction is expected to close in the third quarter of 2020, subject to customary closing conditions, including obtaining regulatory clearance from the AMF, French foreign investment clearances and a favorable opinion of the EOS board of directors based on the fairness opinion issued by the independent expert appointed by EOS.
 
ATEC has entered into a commitment letter with Perceptive Advisors which provides debt financing of up to $160 million from affiliates of Perceptive. The financing consists of: 1) a committed facility up to $60 million to retire certain existing debt facilities of ATEC; and 2) a facility of up to $100 million ($70 million of which is fully committed) to fully fund the cash offer.
 
“We are pleased to be partnering with ATEC on this transformative transaction,” said Sam Chawla, portfolio manager, Perceptive Advisors. “We have witnessed a tremendous repositioning of ATEC over the past two years, and are happy to support the company’s continued evolution.  We believe that the combination will drive true clinical distinction and enhance ATEC’s already growing market position.”
 
ATEC paid Perceptive a fee of $1.3 million in connection with Perceptive’s commitments.
 
Borrowings under the Perceptive facility are subject to customary conditions for committed facilities, including, among others, the consummation of the EOS acquisition without material changes, payment of fees and expenses, issuance of applicable fees upon draws, entry into definitive documentation reflecting the terms of the Perceptive commitment letter, and no material adverse effect with respect to EOS.