Small-cap CryoLife to snap up mechanical heart valve startup for $130M

On-X Aortic Heart Valve with Standard sewing ring--Courtesy of On-X Life Technologies

CryoLife ($CRY) is slated to buy Austin, TX-based startup On-X Life Technologies for $130 million in cash and stock. The Atlanta, GA-based acquirer specializes in tissue implants and medical devices for cardiac and vascular surgical use; the deal will add the On-X aortic valve as well as other marketed valve products.

In April, the FDA updated the approved indication for the aortic valve to make it the only U.S.-marketed one that can be used with a reduced anticoagulant drug regimen. On-X uses a pyrolytic carbon coating technology that's intended to reduce turbulence, thereby lowering the need for anticoagulants such as warfarin. Founded in 1994, last year On-X had about $33 million in revenues with a four-year compound growth rate of 13%.

"This will be a transformative acquisition for CryoLife that will significantly enhance the size of our addressable market and growth potential," said CryoLife Chairman, President and CEO J. Patrick Mackin in a statement on the deal.

He detailed the primary deal rationale, "First, the On-X aortic valve is the only mechanical valve to receive FDA labeling requiring an INR (international normalized ratio) level of only 1.5-2.0. This labeling provides the On-X valve with a distinct competitive advantage. Second, with the addition of the On-X sales team to the CryoLife team, our U.S. cardiac surgery sales force will more than double."

On-X valves have already been implanted in more than 200,000 patients. Mackin anticipates that CryoLife will be able to continue to grow the acquired portfolio revenue in the double digits on average over the next four years.

CryoLife recently reduced its 2015 revenue guidance to a range of $146 to $148 million. That's an increase of only 1% to 3% over 2014. It anticipates 2015 EPS of $0.09 to $0.11. The company has a market cap of only about $290 million.

The deal value is 70% in cash with the remainder in CryoLife stock. The company will help finance the cash portion with $95 million in 5-year debt that includes a $75 million term loan and a $20 million credit facility. The deal is slated to close in January.

"We expect this transaction to enhance the growth trajectory of On-X products through the additional resources provided by a larger, global cardiac surgery company," concluded On-X President and CEO Clyde Baker.

- here is the announcement