November 30, 2011 9:36 pm

SonoSite bidders home in on multiple, ‘call points’, sources say

This article is provided to readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors.


Some SonoSite (NASDAQ:SONO) suitors are concerned about its relatively high trading multiple and lack of a business focus, sources told dealReporter.

Earlier this month, Bloomberg News reported that SonoSite, the Bothell, Washington-based developer of hand-carried ultrasound (HCU) systems, hired JPMorgan to consider a sale.

The Korean conglomerate Samsung Electronics has been meeting with SonoSite’s management and is one of the few remaining parties looking at the business, according to a source familiar with the matter.

Morgan Stanley has been leading Samsung’s efforts in growing medical device operations and scanning for potential deals in this area.

A spokesperson for Samsung Electronics said the company does not comment on market rumors. Morgan Stanley also declined to comment.

As part of its long-term plans, Samsung announced last year its goal to invest KRW 1.2tn by 2020 in healthcare equipment after closing the acquisition of Medison, a Korean ultrasound device maker. There is no specifically allocated amount for M&A though, the spokesperson said.

Early on in the process, SonoSite attracted private equity buyers; however, the company’s high trading multiples have discouraged these bidders from pursuing the company further, according to an industry banker.

SonoSite trades expensively on an earnings basis, but cheap on a revenue basis. This suggests that the market has either modest expectations for its top-line growth or is already discounting a fairly high level of earnings growth.

Before the news of a potential sale, the stock was trading around a 25x 2012 EPS estimates, a premium to the peer group of 10%. On an 2012 EV/Sales basis, SonoSite trades at 1.7x, versus 2.4x for peers, a 38% discount.

For the first nine months of 2011, SonoSite reported USD 9.8m in operating income on USD 220m in revenue, indicating the firm has lower operating margins than some competitors.

A problem with the company, which has attracted praise from analysts and deal makers, is that it has no particular market focus, so it has sold its products across all divisions of hospitals, a second industry banker said. SonoSite has too “many call points in a hospital”, he said.

This may hamper an acquirer’s ability to focus SonoSite’s growth on a particular area, the banker said.

An industry source, who was briefed on the situation, said the looming global credit risks may not be favorable to securing a sale multiple similar to precedent deals in the sector. SonoSite has jumped 33% since Bloomberg’s story.

A USD 700m deal value, or around USD 50 per share, is a fair value for the company, according to the industry source and a third industry banker.

Other strategic buyers, whose names could not be determined, were at some point interested in the company. It is unclear how many are heading into the final round.

SonoSite declined to comment.


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