SeaSpine Holdings acquired by Orthofix Medical: fairness opinion by Perella Weinberg Partners and Piper Sandler
Announced October 11, 2022 · Stock merger · All stock ·
DEFM14A filed November 23, 2022
Medical Devices and Supplies Medical Devices
Enterprise value
$280M
EV / LTM EBITDA
—
EBITDA $-14.0M · -5% margin
EV / LTM revenue
1.03x
revenue $273M
DCF discount rate
10.5%–12.5%
Perpetuity growth
Deal terms
ConsiderationAll stock
Price per share$7.64
Premium—
Premium basis—
StructureStock merger
Termination fee$10.6M
Reverse termination fee$13.7M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Each share of SeaSpine common stock converted into 0.4163 shares of Orthofix common stock; implied per-share merger consideration of $7.64 based on the Orthofix closing price of $18.34 on October 7, 2022. All-stock merger of equals structure with reciprocal termination fees.
Implied value per share by method vs. $7.64 offer
Selected companies — EV / LTM Revenue (Select Orthopedic Companies, applied to SeaSpine) (Piper Sandler) $8.62 – $23.24
Selected companies — EV / 2022E Revenue (Select Orthopedic Companies, applied to SeaSpine) (Piper Sandler) $9.40 – $23.81
Selected companies — EV / 2023E Revenue (Select Orthopedic Companies, applied to SeaSpine) (Piper Sandler) $10.22 – $23.61
Selected companies — EV / LTM Gross Profit (Select Orthopedic Companies, applied to SeaSpine) (Piper Sandler) $9.93 – $21.30
Selected companies — EV / 2022E Gross Profit (Select Orthopedic Companies, applied to SeaSpine) (Piper Sandler) $10.60 – $22.23
Selected companies — EV / 2023E Gross Profit (Select Orthopedic Companies, applied to SeaSpine) (Piper Sandler) $11.90 – $23.20
Selected companies — EV / LTM Revenue (Spine Implant Companies, applied to SeaSpine) (Piper Sandler) $8.89 – $26.95
Selected companies — EV / 2022E Revenue (Spine Implant Companies, applied to SeaSpine) (Piper Sandler) $9.70 – $27.19
Selected companies — EV / 2023E Revenue (Spine Implant Companies, applied to SeaSpine) (Piper Sandler) $10.63 – $25.93
Selected companies — EV / LTM Gross Profit (Spine Implant Companies, applied to SeaSpine) (Piper Sandler) $9.43 – $23.53
Selected companies — EV / 2022E Gross Profit (Spine Implant Companies, applied to SeaSpine) (Piper Sandler) $10.14 – $23.72
Selected companies — EV / 2023E Gross Profit (Spine Implant Companies, applied to SeaSpine) (Piper Sandler) $11.65 – $23.34
Selected companies — EV / LTM Revenue (Growth Med Tech with Losses Companies, applied to SeaSpine) (Piper Sandler) $14.53 – $27.58
Selected companies — EV / 2022E Revenue (Growth Med Tech with Losses Companies, applied to SeaSpine) (Piper Sandler) $15.65 – $27.76
Selected companies — EV / 2023E Revenue (Growth Med Tech with Losses Companies, applied to SeaSpine) (Piper Sandler) $14.61 – $26.48
Selected companies — EV / LTM Gross Profit (Growth Med Tech with Losses Companies, applied to SeaSpine) (Piper Sandler) $13.80 – $25.63
Selected companies — EV / 2022E Gross Profit (Growth Med Tech with Losses Companies, applied to SeaSpine) (Piper Sandler) $15.20 – $26.60
Selected companies — EV / 2023E Gross Profit (Growth Med Tech with Losses Companies, applied to SeaSpine) (Piper Sandler) $14.77 – $27.63
Selected companies — EV / LTM Revenue (Profitable Orthopedic Companies, applied to Orthofix) (Piper Sandler) $41.72 – $69.45
Selected companies — EV / 2022E Revenue (Profitable Orthopedic Companies, applied to Orthofix) (Piper Sandler) $40.91 – $66.88
Selected companies — EV / 2023E Revenue (Profitable Orthopedic Companies, applied to Orthofix) (Piper Sandler) $40.96 – $66.39
Selected companies — EV / LTM Revenue (Low Growth and Profitable Med Tech Companies, applied to Orthofix) (Piper Sandler) $27.56 – $57.49
Selected companies — EV / LTM Revenue (Select Orthopedic Companies, applied to Orthofix) (Piper Sandler) $32.72 – $93.27
Discounted cash flow (Piper Sandler) $2.93 – $6.52
Contribution Analysis (Piper Sandler) $4.84 – $6.29
Has/Gets Analysis (combined company DCF with Synergies) (Piper Sandler) $11.24 – $20.66
Historical Trading Analysis - SeaSpine (Piper Sandler) $5.51 – $16.31
Historical Trading Analysis - Orthofix (Piper Sandler) $18.34 – $38.52
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Perella Weinberg Partners to the acquirer board
Delivered October 10, 2022 · Fee $5.6M ($3.1M contingent on closing), $2.5M on delivery of the opinion
Discounted cash flow assumptions
Discount rate10.5%–11.5%
BasisEstimated weighted average cost of capital of SeaSpine (10.50%-11.50%); Orthofix discounted at 9.75%-10.75%
Terminal valuePerpetuity growth
Perpetuity growth3.0%–5.0%
Exit multiple—
Projection period2H2022E-2031E
Projections usedSeaSpine Forecasts (SeaSpine management risk-adjusted projections) for SeaSpine; Orthofix Forecasts (Orthofix management) for Orthofix
Implied value per share$6.00–$11.00
SeaSpine standalone DCF implied $6-$11 per share; Orthofix standalone DCF implied $24-$30 per share (discount rates 9.75%-10.75%, perpetuity growth 2.0%-3.0%). Implied exchange ratio range 0.213x-0.453x. Present value as of October 7, 2022.
Selected public companies (11)
Globus Medical Inc. · CONMED Corporation · NuVasive, Inc. · Integra LifeSciences Holdings Corporation · Smith & Nephew plc · Zimmer Biomet Holdings Inc. · Anika Therapeutics, Inc. · Bioventus Inc. · ZimVie Inc. · Alphatec Spine, Inc. · Si-Bone, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2022E Revenue (Large Orthopedic Peers observed; applied to SeaSpine) | 2.4x | 3.1x | 5.1x | 1.8x–2.8x | $11.00–$17.00 |
| EV / 2023E Revenue (Large Orthopedic Peers observed; applied to SeaSpine) | 2.3x | 2.9x | 4.6x | 1.5x–2.5x | $11.00–$18.00 |
| EV / 2022E Revenue (Orthofix Peers observed; applied to Orthofix) | 0.7x | 1.9x | 2.3x | 0.8x–1.8x | $19.00–$41.00 |
| EV / 2023E Revenue (Orthofix Peers observed; applied to Orthofix) | 0.7x | 1.7x | 2.1x | 0.8x–1.8x | $20.00–$44.00 |
| EV / 2022E EBITDA (Orthofix Peers observed; applied to Orthofix) | 5.7x | 13.3x | 25.1x | 6.5x–10.0x | $20.00–$30.00 |
| EV / 2023E EBITDA (Orthofix Peers observed; applied to Orthofix) | 4.8x | 10.2x | 29.9x | 5.0x–9.0x | $19.00–$31.00 |
| EV / 2022E EBITDA (Large Orthopedic Peers observed) | 9.2x | 11.6x | 16.9x | — | — |
| EV / 2023E EBITDA (Large Orthopedic Peers observed) | 8.6x | 10.9x | 14.8x | — | — |
| EV / 2022E Revenue (SeaSpine Only Peers observed) | 0.7x | 2.3x | 4.7x | — | — |
| EV / 2023E Revenue (SeaSpine Only Peers observed) | 0.7x | 2.1x | 3.9x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Discounted Cash Flow Analysis of Synergies / Pro Forma Combined Company | Synergies discounted at 9.75%-10.75% with 3.0% perpetuity growth; combined pro forma value per share including synergies, less transaction expenses: $30-$39 using SeaSpine discount rate for SeaSpine cash flows and $31-$42 using Orthofix discount rate. | $30.00–$42.00 |
| Historical Share Price Analysis | 52-week period ended October 7, 2022: Orthofix intraday low/high $18-$39; SeaSpine $5-$17. Last 6 months: Orthofix $18-$35; SeaSpine $5-$11. Implied exchange ratio ranges of 0.141x-0.915x (52-week) and 0.155x-0.622x (6-month). For reference purposes only. | $5.00–$17.00 |
| Research Analyst Price Targets | All Wall Street analysts: $28-$48 for Orthofix and $12-$26 for SeaSpine; analysts covering both: $28-$45 for Orthofix and $16-$26 for SeaSpine. Implied exchange ratio ranges of 0.250x-0.938x (all) and 0.356x-0.938x (covering both). For reference purposes only. | $12.00–$26.00 |
Aggregate fee of approximately $5,600,000, of which $2,500,000 was payable upon delivery of the opinion and the remainder contingent upon consummation of the merger. Orthofix also agreed to reimburse expenses, pay Perella Weinberg a portion of any break-up fee received, and indemnify it.
Opinion of Piper Sandler to the target board
Delivered October 10, 2022 · Fee $4.3M, $1.0M on delivery of the opinion
Discounted cash flow assumptions
Discount rate10.5%–12.5%
BasisSeaSpine WACC estimated using CAPM plus size premium (10.5%-12.5%); Orthofix WACC 9.2%-11.2%
Terminal valuePerpetuity growth
Perpetuity growth3.5%–5.0%
Exit multiple—
Projection periodJuly 1, 2022 - December 31, 2031
Projections usedSeaSpine management risk-adjusted projections (reflecting NOL generation/usage); Orthofix management projections for Orthofix
Implied value per share$2.93–$6.52
SeaSpine standalone DCF implied $2.93-$6.52 per share vs. implied per-share merger consideration of $7.64; assumed SeaSpine raises $80 million of additional equity capital during 2022 and/or 2023 at $5.51 per share. Orthofix standalone DCF implied $18.15-$30.17 per share (discount rates 9.2%-11.2%, perpetuity growth 2.0%-3.5%) vs. Orthofix closing price of $18.34. Implied exchange ratio reference range 0.0971x-0.3595x vs. 0.4163x. Cash flows discounted back to June 30, 2022.
Selected public companies (23)
Anika Therapeutics, Inc. · Bioventus Inc. · ConforMIS, Inc. · CONMED Corporation · Enovis Corporation · Globus Medical, Inc. · NuVasive, Inc. · Paragon 28, Inc. · SI-Bone, Inc. · Surgalign Holdings, Inc. · Xtant Medical Holdings, Inc. · ZimVie Inc. · Alphatec Holding, Inc. · Apollo Endosurgery, Inc. · Apyx Medical Corporation · AtriCure, Inc. · Cerus Corporation · KORU Medical Systems, Inc. · Neuronetics, Inc. · Sientra, Inc. · AngioDynamics, Inc. · LivaNova PLC · Organogenesis Holdings Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue (Select Orthopedic Companies, applied to SeaSpine) | 0.5x | 2.4x | 8.1x | 1.4x–4.4x | $8.62–$23.24 |
| EV / 2022E Revenue (Select Orthopedic Companies, applied to SeaSpine) | 0.5x | 2.2x | 7.4x | 1.4x–4.0x | $9.40–$23.81 |
| EV / 2023E Revenue (Select Orthopedic Companies, applied to SeaSpine) | 0.4x | 2.0x | 6.2x | 1.3x–3.4x | $10.22–$23.61 |
| EV / LTM Gross Profit (Select Orthopedic Companies, applied to SeaSpine) | 0.8x | 3.4x | 9.8x | 2.6x–6.1x | $9.93–$21.30 |
| EV / 2022E Gross Profit (Select Orthopedic Companies, applied to SeaSpine) | 0.7x | 3.0x | 9.1x | 2.5x–5.7x | $10.60–$22.23 |
| EV / 2023E Gross Profit (Select Orthopedic Companies, applied to SeaSpine) | 0.6x | 2.7x | 7.7x | 2.3x–4.9x | $11.90–$23.20 |
| EV / LTM Revenue (Spine Implant Companies, applied to SeaSpine) | 0.5x | 3.6x | 5.3x | 1.5x–5.2x | $8.89–$26.95 |
| EV / 2022E Revenue (Spine Implant Companies, applied to SeaSpine) | 0.5x | 3.3x | 5.0x | 1.5x–4.6x | $9.70–$27.19 |
| EV / 2023E Revenue (Spine Implant Companies, applied to SeaSpine) | 0.4x | 2.8x | 4.6x | 1.4x–3.8x | $10.63–$25.93 |
| EV / LTM Gross Profit (Spine Implant Companies, applied to SeaSpine) | 0.8x | 4.7x | 7.4x | 2.5x–6.9x | $9.43–$23.53 |
| EV / 2022E Gross Profit (Spine Implant Companies, applied to SeaSpine) | 0.7x | 4.3x | 6.8x | 2.3x–6.1x | $10.14–$23.72 |
| EV / 2023E Gross Profit (Spine Implant Companies, applied to SeaSpine) | 0.6x | 3.7x | 6.1x | 2.3x–4.9x | $11.65–$23.34 |
| EV / LTM Revenue (Growth Med Tech with Losses Companies, applied to SeaSpine) | 0.9x | 4.0x | 8.1x | 2.6x–5.3x | $14.53–$27.58 |
| EV / 2022E Revenue (Growth Med Tech with Losses Companies, applied to SeaSpine) | 0.9x | 3.7x | 7.4x | 2.5x–4.7x | $15.65–$27.76 |
| EV / 2023E Revenue (Growth Med Tech with Losses Companies, applied to SeaSpine) | 0.7x | 3.2x | 6.2x | 2.0x–3.9x | $14.61–$26.48 |
| EV / LTM Gross Profit (Growth Med Tech with Losses Companies, applied to SeaSpine) | 1.2x | 6.1x | 9.8x | 3.8x–7.6x | $13.80–$25.63 |
| EV / 2022E Gross Profit (Growth Med Tech with Losses Companies, applied to SeaSpine) | 1.2x | 5.8x | 9.1x | 3.7x–6.9x | $15.20–$26.60 |
| EV / 2023E Gross Profit (Growth Med Tech with Losses Companies, applied to SeaSpine) | 0.9x | 4.7x | 7.7x | 2.9x–5.9x | $14.77–$27.63 |
| EV / LTM Revenue (Profitable Orthopedic Companies, applied to Orthofix) | 0.7x | 2.4x | 5.3x | 1.9x–3.2x | $41.72–$69.45 |
| EV / 2022E Revenue (Profitable Orthopedic Companies, applied to Orthofix) | 0.7x | 2.3x | 5.0x | 1.8x–3.0x | $40.91–$66.88 |
| EV / 2023E Revenue (Profitable Orthopedic Companies, applied to Orthofix) | 0.7x | 2.1x | 4.6x | 1.6x–2.8x | $40.96–$66.39 |
| EV / LTM Revenue (Low Growth and Profitable Med Tech Companies, applied to Orthofix) | 0.7x | 2.2x | 3.5x | 1.2x–2.6x | $27.56–$57.49 |
| EV / LTM Revenue (Select Orthopedic Companies, applied to Orthofix) | 0.5x | 2.4x | 8.1x | 1.4x–4.4x | $32.72–$93.27 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Contribution Analysis | Compared SeaSpine and Orthofix revenue and gross profit contributions to the combined company 2022-2024 (excluding Synergies, adjusted for net cash as of June 30, 2022). SeaSpine revenue contribution 35.6% (2022), 36.8% (2023), 38.8% (2024); gross profit contribution 32.8%/34.6%/36.8%. Implied SeaSpine value per share of $5.48-$6.29 (revenue) and $4.84-$5.77 (gross profit); implied exchange ratios 0.2990x-0.3428x (revenue) and 0.2639x-0.3147x (gross profit) vs. 0.4163x. | $4.84–$6.29 |
| Has/Gets Analysis (combined company DCF with Synergies) | DCF of the combined company including Synergies, unlevered after-tax free cash flows July 1, 2022 - December 31, 2031, perpetuity growth 2.65%-4.15%, discount rates 8.7%-10.7% (combined company WACC via CAPM plus size premium). Implied per share value to SeaSpine holders in the combined company of $11.24-$20.66 versus $2.93-$6.52 standalone. | $11.24–$20.66 |
| Historical Trading Analysis - SeaSpine | One-year period ended October 7, 2022 closing prices ranged from $5.51 to $16.31 per share versus implied per-share merger consideration of $7.64. Informational only, not relied upon. | $5.51–$16.31 |
| Historical Trading Analysis - Orthofix | One-year period ended October 7, 2022 closing prices ranged from $18.34 to $38.52 per share versus the Orthofix closing price of $18.34. Informational only. | $18.34–$38.52 |
| Historical Stock Price Performance | Over the 1-year and 2-year periods ended October 7, 2022, SeaSpine declined 65% and 66%, Orthofix declined 52% and 45%, and the S&P 500 declined 17% and rose 6%, respectively. | — |
| Historical Trading Analysis - Exchange Ratio | Historical implied exchange ratios: 2-year high 0.5389x, low 0.2278x, average 0.3909x; 1-year high 0.4995x, low 0.2278x, average 0.3475x; VWAP ratios of 0.3040x (YTD), 0.2931x (90-day), 0.3026x (60-day), 0.3125x (30-day); spot ratio on October 7, 2022 of 0.3004x, versus the 0.4163x exchange ratio. | — |
| Revenue Dollar Growth Contribution Analysis | Relative equity value percentages based on revenue dollar growth contribution: SeaSpine/Orthofix of 78.2%/21.8% (2022), 48.4%/51.6% (2023) and 53.4%/46.6% (2024). Informational only. | — |
| Exchange Ratio Reference Ranges (selected public companies) | Select Orthopedic Companies implied exchange ratio ranges of 0.1813x-0.3646x (mean/median) and 0.0924x-0.7254x (25th/75th percentile); average of all selected public companies analyses implied 0.2511x-0.4141x (mean/median) and 0.1328x-0.7782x (25th/75th percentile), versus the 0.4163x exchange ratio. | — |
Aggregate fee of approximately $4.3 million, $1 million of which was payable for rendering the fairness opinion and is creditable against the total fee; the opinion fee was not contingent upon consummation of the merger or the conclusions reached. Piper Sandler previously received approximately $2.1 million as joint bookrunner on SeaSpine's April 2021 common stock offering.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $329M | $388M | $444M | $503M | $563M | 14.4% |
| Revenue growth | 20.5% | 17.9% | 14.4% | 13.3% | 11.9% | |
| EBITDA | $6.0M | $25.0M | $45.0M | $63.0M | $82.0M | 92.3% |
| EBITDA growth | — | 316.7% | 80.0% | 40.0% | 30.2% | |
| EBITDA margin | 2% | 6% | 10% | 13% | 15% | |
| Implied EV / EBITDA | 46.7x | 11.2x | 6.2x | 4.4x | 3.4x |
Year-1 growth is against LTM at announcement ($273M revenue, $-14.0M EBITDA); later years are year over year.
Two sets of management projections were used. Orthofix management's forecasts (2H 2022F-2031F) showed total revenue of $250M in 2H 2022 rising to $945M in 2031, adjusted EBITDA of $31M growing to $176M, and free cash flow of ($17M) in 2H 2022 rising to $63M in 2031. SeaSpine management's risk-adjusted standalone projections (six months ended December 31, 2022 through 2031) showed total revenue of $129M growing to $735M, adjusted EBITDA of ($6M) in 2H 2022 (and ($14M) in 2023) rising to $137M in 2031, and unlevered free cash flow of ($41M) rising to $51M. Synergy estimates from the merger, prepared by Orthofix and SeaSpine management, were also used by both advisors in pro forma/combined company analyses.
Process notes
Merger of equals-style all-stock transaction with two fairness opinions: Perella Weinberg opined to the Orthofix (acquirer) board that the 0.4163x exchange ratio was fair to Orthofix, and Piper Sandler opined to the SeaSpine (target) board that the exchange ratio was fair to SeaSpine stockholders. Both opinions dated October 10, 2022. Reciprocal termination fees: SeaSpine pays Orthofix $10,582,995 and Orthofix pays SeaSpine $13,744,149, in each case plus up to $2.0 million of expense reimbursement; the initial draft merger agreement contemplated fees equal to approximately 3.5% of transaction value. Notably, Piper Sandler's SeaSpine standalone DCF range ($2.93-$6.52) fell below the $7.64 implied merger consideration, and its analysis assumed SeaSpine would need to raise $80 million of additional equity capital to fund its standalone plan. Confidentiality agreement between the parties dated February 28, 2022; merger agreement executed October 10, 2022.
Other Medical Devices and Supplies fairness opinions
- Abiomed / Johnson & Johnson 2022 · 55.9x EV/EBITDA
- Apollo Endosurgery / Boston Scientific 2022
- Intersect ENT / Medtronic 2022
- Intricon / Altaris 2022 · 16.8x EV/EBITDA
- NuVasive / Globus Medical 2023 · 10.6x EV/EBITDA
- Cardiovascular Systems / Abbott 2023
All Medical Devices and Supplies opinions → · Perella Weinberg Partners opinions · Piper Sandler opinions