PhotoMedex, a leader in the development of proprietary excimer laser and fiber optic systems as well as other products for dermatological applications, announced the signing of a definitive purchase agreement to acquire Photo Therapeutics Limited for $13 million in cash at closing, and up to an additional $7 million in cash if certain gross profit milestones are met by Photo Therapeutics between July 1, 2008 and June 30, 2009, subject to customary adjustments.
The acquisition will be funded through a convertible debt investment of up to $25 million (with associated warrants) by an investment fund managed by Perseus, LLC.
The proposed acquisition and investment are subject to customary closing conditions, including approval by the stockholders of Photo Therapeutics of the proposed acquisition and approval by the stockholders of PhotoMedex of the proposed investment by Perseus and a reverse split of the outstanding shares of common stock of PhotoMedex at a ratio as may be agreed between PhotoMedex and Perseus. Certain shareholders of Photo Therapeutics who collectively own approximately 51.5 per cent of Photo Therapeutics' outstanding shares have agreed to vote all of their shares in favour of the proposed acquisition. Approval by the holders of 75 per cent of the shares of Photo Therapeutics entitled to vote and present in person or by proxy at its shareholder meeting will be required to approve the proposed acquisition. The proposed acquisition and the first tranche of the proposed investment by Perseus are expected to close concurrently in the fourth quarter of 2008.
Photo Therapeutics is a privately owned developer and provider of non-laser light devices and associated skin care products for the treatment of a range of clinical and aesthetic dermatological conditions including acne, photodamage, skin rejuvenation, psoriasis, post-surgery wound healing and non-melanoma skin cancer. Photo Therapeutics had sales of approximately $4.1 million for the six months ended June 30, 2008 and cash and equivalents of approximately $1.1 million as of June 30, 2008. The company has three primary business segments: Professional Devices, Home Use Devices and Skin Care Consumables. Photo Therapeutics has an installed base of more than 2,600 systems (approximately 65 per cent outside the United States), including the Omnilux and Lumiere product platforms, in physician offices, spas and salons. Photo Therapeutics Limited is incorporated in the U.K. and Photo Therapeutics, Inc., its US subsidiary which will be included in the PhotoMedex acquisition, is incorporated in Delaware.
Jeff O'Donnell, president and CEO of PhotoMedex, commented, "We believe this proposed acquisition will be a transforming event for PhotoMedex and underscore our strong strategic focus on dermatology. We look forward to expanding our presence in the dermatology community by acquiring a company with products and technology highly regarded by our customers and our scientific advisory board. We believe that the combined company will offer even greater value to dermatologists by providing a proven platform for treating a wide range of skin conditions, as well as effective pre- and post-procedure treatment products that generate recurring revenue and an opportunity to improve practice profitability.
"In addition, we believe this acquisition will leverage our established distribution channels and we expect it to be accretive to earnings beginning in 2009. We are pleased that such a well-regarded investor as Perseus has shown confidence in PhotoMedex and our ability to build our professional and OTC dermatology business," he said.
Ray E. Newton III, senior managing director of Perseus stated, "We are very pleased to be joining forces with PhotoMedex management in the execution of their strategic vision in dermatology. We are enthusiastic about the opportunities that the combination of PhotoMedex and Photo Therapeutics represents. More generally, we believe dermatology is an exciting sector for investors with significant upside, and this acquisition favourably positions PhotoMedex for future success."
Cowen and Company and William Blair International Limited acted as financial advisors to PhotoMedex and Photo Therapeutics, respectively for this transaction.
The convertible debt investment by Perseus will be made in two tranches. The first tranche of $18 million will fund the initial payment to Photo Therapeutics and also provide $5 million for working capital and other general corporate purposes. The second tranche will be up to $7 million as a standby commitment to fund any gross profit milestone earn out payments to Photo Therapeutics, if required. Perseus will have the right to nominate one board director upon closing of the first tranche, and an additional board director if any second tranche notes are issued.
The additional $7 million of purchase price the stockholders of Photo Therapeutics may receive will be earned at the rate of $2.80 for each dollar of gross profit Photo Therapeutics generates in excess of $7.1 million for the period July 1, 2008 through June 30, 2009. To achieve the maximum $7 million payout pursuant to the purchase agreement, Photo Therapeutics will need to achieve approximately $15 million of sales during the earn out period to deliver sufficient gross profit to meet the requirements under the purchase agreement, assuming costs are consistent with past levels.
PhotoMedex offers a wide range of products and services across multiple specialty areas, including dermatology, urology, gynaecology, orthopaedics and other surgical specialties. PhotoMedex is a leader in the development, manufacturing and marketing of medical laser products and services.
Photo Therapeutics is a developer and provider of non-laser light devices and associated skin care products for the treatment of a range of clinical and aesthetic dermatological conditions. The company operates out of three primary business segments: Professional Devices, Home Use Devices and Skin Care Consumables.