Zacks_Analysts' Blog : Integra Acquires Ascension - Analyst Blog

Recently, Integra LifeScience Holdings Corporation (IART) acquired Ascension Orthopedics, Inc, for approximately $65 million in cash. Texas-based Ascension primarily manufactures innovative foot, hand and shoulder implants.

Post acquisition, Ascension products are expected to represent approximately 45% of Integra's Orthopedics revenues. The company strongly believes that the acquisition will be a strategic fit for its business. The upper extremity and shoulder implants of Ascension should widen Integra’s orthopedic portfolio and complement its strong position in lower extremity.

Integra will also benefit from the currently-marketed leading-edge shoulder products of Ascension, thus opening the largest component of the extremities market, estimated at $600 million. Furthermore, the acquisition will enable Integra to utilize Ascension's proprietary PyroCarbon material for its product development program.

Integra is expected to provide detailed guidance regarding the acquisition in its third quarter 2011 results. However, at this stage, the company expects negligible revenue contribution from the acquisition in the upcoming third quarter 2011 but estimates contribution of approximately $4 million for the fourth quarter and $20 million for fiscal 2012.

Integra exited the second quarter of fiscal 2011 with $137.3 million in cash and cash equivalents ($128.7 million at the end of December 2010) and free cash flow of $17.4 million. A strong cash balance enables the company to pursue suitable acquisitions.

The company also issued $230 million of 1.625% convertible notes due December 2016. During the quarter, Integra further repurchased 1.1 million shares for $52.7 million.

Integra is a global leader in regenerative medicine. The company reports its revenue under three categories: Integra NeuroSciences, Integra Orthopedics, and Integra Medical Instruments to treat millions of patients in the US, Europe and the Asia-Pacific every year.

During the last reported quarter, Orthopedic sales increased 11% year over year to $80.5 million. With the completion of Ascension's acquisition, the combined Extremity Reconstruction product portfolio will emerge as the key component under Integra’s orthopedic revenue category.

However, tighter capital spending continues to challenge the surgical instruments market. Moreover, Integra faces direct competition in the medical instruments & supplies industry from major players like Medtronic (MDT) and Stryker Corp. (SYK).

Presently, we remain Neutral on Integra, which also corresponds to the company's Zacks #3 Rank (Hold) in the short term.