Israeli fund Accelmed, controlled by Dr. Uri Geiger and Arkin Holdings, has scored a success: Cogentix Medical Inc. (Nasdaq: CGNT), in which the fund owns a 26.7% stake, has been sold to Canadian company Laborie Medical Technologies for $242 million.
The share price for the purposes of the deal is $3.85, which compares with a price of $1.1 when Accelmed announced the purchase of its stake in the company in late 2016. Accelmed has thus made 250% on its investment within a year and a half. Cogentix has a current market cap of $205 million and a share price of $3.37, so that the acquisition price represents a premium of 14%.
Another investor in Cogentix is Israeli-American Lewis Pell, who was a leading private investor in Israeli medical device companies in the late 1990s and early 2000s. Pell holds 33% of Cogentix, after converting a loan to the company to equity in the context of the same deal in which Accelmed bought its stake.
"We invested more in marketing"
"At the time that it was acquired by Accelmed a year ago, Cogentix had two products on the market," says Geiger, who led the acquisition and subsequently the sale. "It had annual revenue in the tens of millions of dollars, but it had a debt of $25 million to Lewis Pell. In the combined deal, Accelmed invested $25 million in the company and Pell converted the debt to shares. After the deal was carried out, even before we acquired other companies, we exploited the lack of debt in order to invest more in marketing. We expanded the sales team in the US from 40 to 55 people, and added another ten salespeople in Europe. The company started to grow organically.
"At that time, the main product for bladder stimulation was under threat from a similar product sold by medical devices giant Medtronic. Cogentix, with the aid of our investment, fought back, and in the end Medtronic laid off its entire sales team in this field and in effect gave up on competing."
At the same time, Cogentix terminated its ear nose and throat business and focused more sharply on urology. After the refocusing and the increased investment in marketing the acquisitions began, and Cogentix bought a French urological stents company and a British company that marketed a range of urological products in the British market, enabling Cogentix to gain a foothold there. In October 2017, Cogentix bought Israeli company Vensica for $8 million. Vensica has developed a device for delivering drugs to the bladder wall by ultrasound. Its product is not yet on the market.
"We were in negotiations to bring two additional Israeli companies into Cogentix, but they valued themselves substantially higher than what we considered paying," Geiger told "Globes" today. "In the end, I'm glad that it didn't happen, because we would have been diluted."
These acquisitions brought the company to a growth rate of 16% in the fourth quarter of 2017. Its guidance was for growth of 18-20% in 2018, after recording revenue of $56.3 million in 2017. It has yet to release its profit figure for the fourth quarter and 2017 as a whole, but Geiger says that it is profitable. It will now be delisted and become part of Laborie.
Cogentix is an example of Accelmed's model, which is to buy American companies, some privately held but mostly traded, with a presence in the US market, which have sales in tens of millions of dollars but are not growing. By introducing new technologies, often promising Israeli technologies, into the US company's product offering, Accelmed puts the companies back on a growth path, and later sells them.
The model was fairly successful in the case of ophthalmic imaging systems company OIS, which bought Israeli company MediVision, and was sold two years later, and was somewhat more successful with the sale of US company EndoChoice to Boston Scientific after Israeli company Peer Medical was merged into it. Cogentix is the most successful application of the model so far, in terms of return on investment.
The acquiring company, Laborie, is a privately held company that develops, manufactures and sells innovative medical technology and consumables used in gastrointestinal procedures and for the diagnosis and treatment of pelvic health in the urology, gynecology, and colorectal fields. It is owned by Patricia Industries, which is part of Investor AB, the investment fund of the Wallenberg family of Sweden (Raoul Wallenberg, recognized as one of the Righteous Among the Nations for his role in saving Jews from transportation to the Nazi concentration camps, was a member of the family).
Published by Globes [online], Israel business news - www.globes-online.com - on March 12, 2018
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