RTI Surgical (RTIX) Stock Soars On OEM Unit Sale

RTI Surgical RTIX Stock News

RTI Surgical Holdings Inc (NASDAQ: RTIX) is running for the top in the market this morning, up well over 60% early on. The gains come after the company announced the sale of a business unit, exciting investors. Here’s what’s happening.

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RTIX Climbs On OEM Business Unit Sale

In a press release issued premarket this morning, RTI Surgical announced that it entered into a definitive agreement surrounding the sale of its OEM business. The business was sold to Montagu Private Equity with a price tag of $490 million.

In the release, RTIX said that Montagu is a leading European private equity firm. As part of the terms of the agreement, the firm has agreed to pay cash in the amount of $480 million. The other $10 million will be paid as part of other consideration.

The company said that its board of directors has unanimously approved the transaction, giving it the green light to close in the first half of 2020. As is always the case, this closure is subject to customary closing conditions.

Moving forward, RTIX said that it will be a global pure play spine business with a focus on growth and innovation. Once sold, the OEM business will be under contract with RTI Surgical to support the company with regard to the development and manufacturing of certain products within its portfolio.

Finally, the company said that proceeds from the transaction will be used to pay back debt and to capitalize the company for continued investment in its global spine portfolio. In a statement, Camile Farhat, President and CEO at RTIX, had the following to offer:

The sale of the OEM business to Montagu completes the first phase of our strategic transformation to reduce complexity, drive operational excellence and accelerate the growth of RTI Surgical. We are excited about this transaction, not only because of the value that is immediately created, but also because the OEM business is going to an experienced investor who understands the business and the expertise of the people and will support its growth and development.

Following the transaction, we believe RTI will be a global pure play spine company with tremendous fundamentals and exciting long-term growth prospects. We estimate the spine business will have generated global revenues in the range of $118 million to $119 million with gross margins of approximately 75% in 2019. Immediately, post-transaction, the continuing business is expected to be debt-free and have approximately $175 million to $200 million of cash on the balance sheet to support its growth, which will be further driven by our Novel Therapies and an expected minimum of 10 new product introductions during each of the next two years.

RTI Surgical Gets The Best Of Both Worlds In This Deal

There’s good reason that investors are sending RTIX skyward in the market today. At the end of the day, the transaction is a win/win for the company. Here’s why:

First and foremost, $490 million is a MASSIVE amount of money. In fact, it’s more than a hundred million dollars more than the company is worth! With the funding provided through this deal, the company will have the funds needed to pay back quite a bit of debt and pad its bank account for future innovation.

At the same time, the deal outlines an agreement between the OEM arm and the company, ensuring that the sale of the asset does not interfere with any ongoing development in the compnay’s core spine business.

So, not only is the company going to get funding, but it’s going to maintain accwess to critical tools for the future development of strong products for the global spine business. At the end of the day, you can’t beat a deal like that and RTIX investors are definitely smiling!

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