Teleflex to expand urology portfolio with $600M acquisition

Dive Brief:

Teleflex reached an agreement on Wednesday to acquire Palette Life Sciences for $600 million in cash and up to $50 million in additional milestones.
Santa Barbara-based Palette makes devices to treat urological and urogynecological disorders, adding to Teleflex’s existing portfolio.
Palette is expected to grow its revenue in the “high-teens to low 20% range” by 2024, helping Teleflex meet its own objectives for long-term growth, Teleflex CEO and Chairman Liam Kelly said in a statement.

Dive Insight:

Wayne, Pennsylvania-based Teleflex has sought to grow its business through acquisitions. In 2017, it closed a $1.1 billion acquisition of NeoTract, which makes a prostate treatment called UroLift. Its planned purchase of Palette is expected to add to its urology portfolio.

Palette received FDA clearance last year to market Barrigel, a device used to protect healthy tissue from radiation beam exposure during prostate cancer treatment. The company also sells tissue bulking agents to treat pediatric vesicoureteral reflux, fecal incontinence and stress urinary incontinence, but not all of these products are available in the U.S.

“The acquisition of Palette Life Sciences will allow us to incorporate this exciting technology into our Interventional Urology business unit and bring urologists, radiation oncologists and other specialists more innovative technologies that can positively impact patient care,” Kelly said in a statement. “The transaction is consistent with our strategy to acquire assets that are accretive to Teleflex’s growth rate.”

The CEO added that the acquisition is expected to be immediately accretive to Teleflex’s adjusted gross margin and for Palette to be a meaningful contributor to the company’s growth in future years.

Palette is expected to report $56 million in revenue in 2023. For the amount Teleflex plans to pay, including milestones, that gives Palette a valuation of 11 times its revenue, KeyBanc analyst Matthew Mishan wrote in a research note on Wednesday. The acquisition is also expected to be dilutive to Teleflex’s earnings per share by $0.15 in 2023 and $0.35 in 2024.

“Overall, we believe investors may be somewhat skeptical” given these terms, Mishan wrote.

Shagun Singh, an analyst with RBC Capital Markets, described the price as steep but justified, given Palette’s growth potential. In the future, Singh expects Teleflex “to remain acquisitive looking ahead,” writing in a research note that, “M&A is [their] #1 use of cash.”