Heartware Moves to Acquire Valtech Cardio

This transaction was approved by the boards of directors of HeartWare and Valtech, with holders of more than 70% of Valtech’s shares having signed support agreements committing to the transaction. The deal is expected to close in late 2015.

Valtech is a privately held company that specializes in the development of innovative surgical and transcatheter valve repair and replacement devices for the treatment of the most prevalent heart valve diseases. Since incorporation in 2005, Valtech has developed an expansive portfolio of innovative technologies for the treatment of mitral and tricuspid valve disease.

According to the terms of the agreement, Valtech shareholders will receive an up-front consideration of 4.4 million shares of HeartWare common stock; 800,000 shares of HeartWare common stock, contingent on CE Mark approval for Cardioband; and 700,000 shares of HeartWare common stock upon the earlier of first-in-man implants for either Cardioband tricuspid or CardioValve. The transaction also includes warrants to purchase 850,000 shares of HeartWare common stock at an exercise price of $83.73 per share.

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Canaccord Genuity’s Jason Mills commented on the acquisition by Heartware in a recent report:

HeartWare’s agreement to acquire privately held Valtech Cardio is the type of deal to which investors commonly overreact; but once the dust settles, we would be buyers of this stock. We like that HTWR is playing offense instead of defense — going after unique growth potential, rather than waiting, hoping a white knight sees that quality in HeartWare. Our experience covering med-tech for 16 years suggests companies playing offense — in the right growth areas – tend to win over time. Importantly, mitral valve disease is one of the most prominent, remaining frontiers in med-tech. We estimate functional mitral regurgitation (fMR) alone will represent a $7B annual TAM in the US by 2020E and ~$14 worldwide, and Valtech’s comprehensive mitral product portfolio addresses not only fMR but degenerative MR and tricuspid valve disease as well. Regarding synergies between HTWR’s end-stage HF-focused VAD franchise and Valtech’s mitral suite, we think the huge potential reward is worth the risk. To wit, MV disease exacerbates patients’ heart failure, ultimately driving them into end-stage disease (and HTWR’s VAD solutions). And, these fMR patients are managed by the same clinicians who may eventually make the VAD referral.

Separately, Oppenheimer reiterated an Outperform rating with a $100 price target.

Shares of HeartWare were down over 16% at $68.21 Wednesday morning. The stock has a consensus analyst price target of $96.83 and a 52-week trading range of $69.05 to $95.59.

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