Israeli-Canadian medical aesthetics company Venus Concept, which has $100 million in annual revenue, is slated to complete a merger with Nasdaq-listed Restoration Robotics in the coming months.
Restoration Robotics developed a robot for hair implants. Sales of the robot amounts to several million dollars a year. Following the completion of the planned merger, Venus Concept's shareholders will own 85% of the merged company, and Venus Concept's management will manage the merged company and develop both companies' technologies.
As part of the merger, EW Healthcare Partners will lead a $21 million investment in the merged company, together with Madryn Asset, HealthQuest Capital, Frederic Moll, Longitude Capital Management, and Aperture Venture Partners. Several of these investors took part in Venus Concept's most recent financing round in 2017, in which the company raised $37.5 million.
The new investment will be at $0.85 per Restoration share, 25% higher than the current market price. At this price, the valuation of the merged company will be $240 million.
"We don't care for publicity"
Venus Concept was founded in 2008 by a married couple, Oded and Orit Ron Edoute, at their home in Tel Aviv, together with Oded's brother, Aharon Edoute. "We were partners in several exits in the past, but we don't care for publicity," says Oded Ron Edoute. "We founded the company in the garage. Orit was CEO and I was the active chairman. We wrote nine patents together. Later we set up a large production facility in Karmiel. We were proud to be the only manufacturer in the medical esthetics industry to manufacturer by ourselves, without subcontractors.
"We founded 23 offices and subsidiaries worldwide. In January 2015, we sold a large part of our holdings to a US fund, and remained the largest private shareholder in the company with 10%. Today, we're raising six children and are involved in six or seven more companies in various sectors."
Venus Concept has nearly 600 employees, 70-80 of whom are in Israel. The company has nearly 200 salespeople, and its products are installed n 11,000 clinics worldwide.
Venus Concept's existing products are in the regular areas of the medical esthetics industry (although they are based on the company's unique technology): skin rejuvenation, skin firming, hair removal, treatment for acne, and so on. The company recently received marketing approval in the US for a device that dissolves both fat and cellulite. The device will be launched next quarter.
Venus Concept's revenue up 8% in first half
Ahead of the merger, Venus Concept late last week published several figures from its financial reports. The company posted $28 million in revenue in the second quarter of 2019, 3% more than in the second quarter of 2018. Its gross profit market in the quarter was 72%, down from 78.5% in the corresponding quarter last year.
First half revenue was $52 million, 8.3% more than in the corresponding quarter last year. Its profit margin was similar. Venus Concept's revenue totaled $102 million in 2018, 15.2% more than in 2017, and its 2018 gross profit margin was 77.3%.
The guidance for the merged company in 2019 is $130-135 million in revenue, with most of it coming from Venus Concept. Restoration Robotics had $8.3 million in revenue in the first half of 2019, down 21%, compared with the corresponding period last year, and a $13.6 million net loss. The company had $9.7 million in cash at the end of the first half.
Venus Concept's president and CEO is Domenic Serafino, former president of the North American division of medical esthetics company Syneron in its early days. He played a dominant role in Syneron's IPO in 2004.
"Venus was founded in 2009 by the Ron Edoute family. I knew Oded, who was an executive in an osteoporosis company named Sunlight Medical, and we met in the esthetics market. We later met again at Syneron. In 2010, four years after I left Syneron, I ran into Oded at the Venus Concept boot at a dermatology conference. They were small then, with no international activity. I said, 'Let's combine forces, and I'll help you make the company grow.'"
Serafino says that it was a tough period for the medical esthetics market, which was hit hard by the 2008 crisis in the US market and worldwide. "We decided to built our financial mode differently. Instead of selling machines, we offer a subscription model in which the customer paid nothing for the first treatment. We also gave them security - we marketed directly in all of the important markets, so that we would be able to guarantee that our business model would not change."
"Globes": How were you able to take such a financial risks upon yourselves?
Serafino: "Both sales of the system via subscriptions and the establishment of direct marketing systems are expensive. We had the support of the investors, who brought tens of millions of dollars into the company, because they realized that the differentiation provided by our business model was more significant than the uniqueness of our technology. Today, we market to over 60 countries, with direct marketing in 29 countries.
"The other large companies have a barrier in reaching the community of doctors to whom they appeal, mainly leading plastic surgeons who can afford such a machine. We're less worried about the places where we compete head-to-head with the other companies. We're more interested in expanding the market to customers who aren't plastic surgeons, and who can only afford our device because of the business model."
Restoration Robotics down 91% since its IPO
Restoration Robotics, the company with which Venus Concept is merging, held its IPO on Nasdaq two years ago, raising $25 million at a $196 million valuation. Since then, however, its share has lost 91% of its value. Restoration Robotics' current market cap is only $27 million.
What was the motive for merging with Restoration Robotics?
"We also considered the option of an independent IPO, but this is a company with very interesting technology that apparently went to market too soon. The company has one product with which it is very difficult to penetrate the market, and we can upgrade their distribution system.
"Robotics technology has great potential in the aesthetics market. It's still impossible to talk about precise indications, but we see their robotics capabilities as suitable for our products in many ways, and robotics as the next upgrade in our portfolio. The merger is taking a little more time than we thought, but I believe that we're already nearing the finish line."
How does a robotic hair implant work?
"The robot maps the hair structure in the rear part of the head, where it usually the healthiest. It then trims the hair at the back of the head with the hair follicles without leaving a scar. The robot uses the mapping of the hair on the back of the head to implant it in the upper or front part. It plants the hair randomly and naturally, not like a row of trees in an orchard, which happens in some of the operations."
It is rather amusing that the robot is capable of producing a more random and natural result than a person.
"This is one of its capabilities. It can also verify that the follicle is implanted at exactly the right depth, not too deep, which can cause damage, and deep enough, so that the implant won't fail. Restoration Robotics has broad intellectual property that can also be relevant to us in many other areas."
Published by Globes, Israel business news - en.globes.co.il - on August 19, 2019
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