TranS1 Acquires Baxano, Raises Capital

“The combination of TranS1 Inc. and Baxano, Inc. creates a pure play MIS spine company with much greater scale, ” Ken Reali, Trans1’s CEO and president told OTW about the surprise announcement that Trans1 was acquiring Baxano.

TranS1 announced a definitive agreement on March 4, 2013, to acquire Baxano, a privately-held company that manufactures and markets the io-Flex system utilized in standard spine decompression surgery. Baxano is also developing the io-Tem system, a precision facetectomy instrument.

Up until now, TranS1 has been making tactical moves regarding codes and reimbursement for its AxiaLIF and VEO lumbar fusion products. We asked Reali about shifting into such a strategic mode.

“Minimally invasive treatments are the fastest growing segment of the spine market, ” said Reali. “The spine market is evolving toward MIS and more cost effective solutions. That fits with our vision and strategy. The fact that ‘newco’ will also be public gives us a stronger financial profile. Leveraging our core technologies of iO-Flex, AxiaLIF and VEO along with MIS technologies in development allows us to build a strong suite of synergistic MIS products, ” said Reali.

Piper Jaffray analyst Matt Miksic likes the deal, writing in an investor note on March 5: “The synergies of multiple lines of differentiated MIS technologies, serving specialists within spine surgery focusing on MIS makes strategic sense to us, and the deal also scales up the growth model significantly for the company over the next 2-3 years. In addition to its strategic positives, the financing associated with the deal will delay (but not eliminate) the need to raise additional cash, easing an overhang on TranS1 since January.”

TranS1 will issue approximately 10.4 million shares of its common stock and pay $550, 000 of cash (approximately $23.6 million of value based on the March 1, 2013 closing price) to acquire Baxano. TranS1 will also refinance $3 million of existing debt of Baxano. On a pro forma basis current TranS1 shareholders will own approximately 72.4% of the combined company and approximately 27.6% will be owned by current Baxano shareholders.

After acquisition is complete, Ken Reali and TranS1 Executive VP and CFO Joseph Slattery will continue to serve in their respective roles. The combined company’s corporate headquarters will be based in Raleigh, North Carolina.

Baxano had revenues of $3.9 million and $9.4 million for the fiscal years ended December 31, 2011 and 2012, respectively. On a pro forma basis, the combined company’s revenues were approximately $24.0 million (unaudited) for the year ended December 31, 2012.

Contemporaneously with the execution of the acquisition, TranS1 entered into a Securities Purchase Agreement whereby the company agreed to sell approximately 7.5 million shares of the company’s common stock at a price of $2.28 per share, which will result in net proceeds of approximately $17.2 million.

“At the closing of the acquisition and financing transactions, we expect to have approximately $30 million in cash on the balance sheet, ” said Slattery. “With this additional capital, we are now in a position to demonstrate meaningful revenue growth on a pro forma basis.”