Israeli aesthetic medicine company Radiancy is merging with US company PhotoMedex (Nasdaq: PHMD) in a share swap deal.
On completion of the deal, Radiancy will hold 75% of PhotoMedex, which is traded on Nasdaq at a market cap of $41 million. The deal gives a $174 million valuation to Radiancy.
The Israeli company will also pay PhotoMedex's debt, amounting to $22 million.
Radiancy's sales in the year to March 2011 were $96 million, and it made a profit of $25 million. The two companies will have a joint annual sales turnover of $132 million.
PhotoMedex's share price rose 8% yesterday, following the announcement.
Radiancy's management team, headed by Dr. Dolev Rafaeli, will manage the merged company. No cut in manpower is expected in the Israeli company, which employs about 40 people in Hod Hasharon.
Radiancy held only one round of fund raising, at the end of the 1990s, when it raised a few million dollars, so that, on paper, its shareholders are making a 4,000% gain, at the valuation of $174 million. Even if only the current value of the PhotoMedex shares they will receive is taken into account (75% of $41 million), the return is 900%.
The main shareholders in Radiancy are Prof. Shlomo Ben-Haim and Lewis Pell, who together own 30-40%. The Yozma fund, headed by Yigal Erlich, owned about 8% of the company, which it distributed to its investors and to other, private investors.
Radiancy was founded by Dr. Zion Azar, Pini Shalev, and Dr. Uri Halavi in 1998. At first, the business model was to market products to doctors and cosmetic institutes, like most Israeli aesthetic medicine companies, and the company's advantage was low production costs. This advantage enabled it to develop home products, which are currently its main activity. Among other things, Radiancy has developed a home hair removal device, a device for treating acne, and a home device for rejuvenating the skin.
"In 2007, we started selling directly to consumers in the US, and now sales are $150-180 million in terms of price to the end user," Rafaeli told "Globes." "In Japan, with sales of $200 million in terms of the price to the end user, we are the second largest hair removal company in the country."
The merger with PhotoMedex is being done because there is little overlap between the products of the two companies. "PhotoMedex, which has been around for 20 years, has 150 patents and 200 FDA approvals. Their activity is in three areas: treatments for the skin conditions psoriasis and vitiligo; lasers for surgical procedures; and aesthetic products. However, so far, the company has not entered the domestic product market. This is where we come into the picture.
"The merger enables us to broaden our product offering, expand our sales team, and to obtain a public platform," Rafaeli adds, "We have no need to raise money at present, because we tens of millions of dollars in cash, but we may raise money or use our shares later to buy a company of our order of size. Apart from that, our shareholders have been with us since 1999. They haven't pressured us at all, but the time has come to give them liquidity."
Radiancy was not always a success story. In 2004, it was about to make an IPO, but that move failed because of a dispute between some of the shareholders (chiefly Pell and Ben-Haim) and the entrepreneurs, Shalev and Azar. Eventually, a compromise was reached, under which the entrepreneurs left the company with compensation which it seems bears no resemblance to what they would have gained had they been involved in the current deal.
Rafaeli: "Looking back, it's a shame the company was not floated then. When the entrepreneurs departed, they left behind a company with a product and sales of $25 million, but they took most of the management and employees with them. It was an empty company that had to be built again from scratch."
Radiancy chairman Dr. Yoav Ben Dror, says he managed to resolve the dispute, and that the entrepreneurs and the company are now on good terms. Shalev and Azar have since founded other aesthetic medicine companies.
Ben Dror: "The model of sales to doctors and cosmetic institutes is problematic because of the entry into the market of Chinese manufacturers. We were the only company to switch to consumer products, and we have become world leaders in this field."
Published by Globes [online], Israel business news - www.globes-online.com - on July 6, 2011
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