AtriCure off on cardiac ablation startup buy for about $135M, improved outlook

AtriCure CEO Mike Carrel

AtriCure ($ATRC) said it will buy startup nContact as well as narrow its 2015 revenue guidance to the high end of a previously disclosed range. The public cardiac player, which is focused on atrial fibrillation and left atrial appendage management, will purchase the cardiac ablation company for $8 million in upfront cash, 3.7 million AtriCure shares and up to $50 million in additional regulatory milestones.

That could put the total value of the deal at as much as about $135 million, based on an AtriCure share price of $21. Investors gave an early thumbs-down on the deal with shares skidding 10% to just about $20 in early trading--likely in response to the dilution involved, as well as the deal itself. The deal is expected to close in the next few weeks.

The milestones are specifically tied to the completion of enrollment for a pivotal trial as well as PMA approval of nContact's cardiac ablation technology that is used in the AF-treating Convergent procedure, a closed-chest surgical epicardial ablation that is followed by an endocardial catheter ablation by an electrophysiologist.

The idea is to enable both a surgeon and an electrophysiologist to combine their efforts into a single procedure that enables each to access the posterior of the heart and the pulmonary veins, both of which are associated with AF.

"We expect the combined entity to provide improved market access and additional collaboration opportunities with cardiac surgeons and electrophysiologists," said AtriCure President and CEO Mike Carrel. "This acquisition reinforces our commitment to the Afib market, product innovation and clinical science."

nContact had $8.2 million in 2014 revenues, with growth of about 25% for this year. AtriCure expects about $1.5 million in nContact sales for the remainder of 2015.

AtriCure said it had preliminary third-quarter revenues of about $31.6 million, a bit above Wall Street consensus expectations. For 2015 revenue, it guided to $128 million to $129 million, which is the top of a previously announced range and an increase of 19% to 20%. For 2016, the company said it expects revenue growth of 25%. AtriCure will see an increased adjusted EBITDA loss due to nContact costs in 2016--but it expects to be adjusted EBITDA positive in 2018.

"Our U.S. sales continue to perform extremely well, and while international sales continue to be impacted by the weak Euro and softness in certain Eastern European markets, we remain excited about our prospects for continued growth going forward," added Carrel. "We are confident that we can sustain organic revenue growth of approximately 18% through the end of the decade. This is up from the 15% long term growth expectations we have previously communicated."

- here is the announcement

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