Maybe our 15 is related to this:
?? Acquires remainder of VTS Medical
STE acquired the remainder (50%) of VTS Medical Systems for $19 million in
cash, strengthening its presence in the surgical solutions segment (currently 26%
of revenues). STE entered the operating room integration space in 2008 through
its initial joint venture with VTS, a developer of high-definition video, touch-screen
integration, and communication technology used in hospital operating rooms. It
invested an incremental $17 million in 2011, upping its stake to ~50%. Through its
investment with VTS, STE has evolved from a one-off provider surgical beds and
lighting technology solutions, to a more comprehensive integrated solution within
the operating room, boosting its average revenue opportunity/room to $250,000+
(from $75,000). STE is now the third largest player behind Stryker and Karl Storz.
We are maintaining our current 2013 EPS estimate on limited expected accretion
from the transaction, although our conviction in our forecast is higher.
Value proposition of operating room integration solutions
STE's fully integrated operating room technology solution, which offers workflow
management, communication, and surgical capital equipment products and
services, is now one of its fastest growing segments. Within the segment, STE
does not sell medical devices specifically, and unlike its primary operating room
infrastructure competitors (Stryker & Storz), it can offer open architecture, not tied
to any specific equipment manufacturer, giving hospitals greater options on what
instruments and high-tech equipment they want to install. Its fully integrated
operating rooms can increase case load by two surgeries/day. There are six
operating rooms in an average hospital, and an incremental two cases/room could
add $160,000+ in revenue for the hospital/day, based on our estimates.
Still playing offense, with room to run
With SYSTEM1 (S1) issues increasingly in its rear-view mirror, STE’s portfolio has
become vastly more diversified, closing four differentiated deals in the past six
months with likely more to come. Its recent deals should bolster top-line growth in
a synergistic fashion and further deemphasize S1, now only 5% of revenues.
Total debt/EBITDA now stands at 2.0x, but it has capacity for additional deals (up
to $100-$150 million), targeting tangential businesses primarily in the healthcare
arena. It remains committed to its dividend with double-digit hikes over the past
seven consecutive years, a trend we do not expect to abate. At 7.6x our forward
EV/EBITDA, it trades at a substantial discount to its historical high, despite its
rebounding growth prospects.