K2M to cash out shareholders, raise $40M on FDA nod for next-gen spinal system

The Mesa 2 Deformity Spinal System--Courtesy of K2M

K2M Group Holdings ($KTWO) got FDA clearance for the second generation of its top product, the Mesa Deformity Spinal System. The company is now planning to capitalize on that milestone. It's slated to raise $40 million, as well as to sell 4.9 million on behalf of existing shareholders including its majority owner, private equity group Welsh, Carson, Anderson & Stowe.

That would give a nice partial exit to selling shareholders of roughly $95 million based on the company's current share price. That could give investors a nice return already on the $54 million that was raised by K2M ahead of the IPO.

Its May IPO raised a whopping $132.4 million, making it one of the largest med tech IPOs in 2014. K2M's share price peaked in early January, but shareholders started selling ahead of preliminary 2014 earnings news. Still, it remains ahead of the $15 IPO price at just above $19. That gives it a market cap of about $700 million.

On Jan. 12, K2M said it expected 2014 revenue of $186.1 to $186.7 million, up 18% over the prior year. K2M had $137.4 million in revenues during the first 9 months of 2014, with an operating loss of $39.4 million during that period. Almost one-third of its revenue during that period was from the Mesa products; the company sells a total of 57 product lines.

The Mesa 2 is a pedicle screw system intended to treat the most complex spinal problems. It offers a particular type of screw for fast insertion, as well as technology to offer simple locking that eliminates torsional stress being applied to the spine. It includes Quick Cricket technology that makes it fast to take the device on and off.

"Compared to its predecessor, Mesa 2's dual-lead thread provides the opportunity for quicker screw insertion and the on/off button on the Crickets provide an easier way for the Crickets to latch on to the Mesa head to help save time during correction," Dr. Laurel Blakemore, chief and associate professor of pediatric orthopedics in the department of orthopedics at the University of Florida, said in a statement.

Ahead of the proposed follow-on, Welsh Carson Anderson & Stowe holds 59.7% (22.3 million shares) of K2M, while another private equity investor, Ferrer Freeman & Company, has 6.2% (2.3 million shares).

- here are the releases on the Mesa 2 FDA clearance, the follow-on and the 2014 preliminary earnings
- and here is the SEC filing for the upcoming offering

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