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Written by Scott Matusow

In the on-going saga of Solta Medical (NASDAQ:SLTM), the next chapter has been written, when on the company's earnings call yesterday it announced it has hired Piper Jaffray as its financial advisor/investment banker to explore strategic alternatives.

We have written several times on this situation, with our most recent article written on September 25, 2013.

Mark Sieckarek, interim CEO and Chairman of the Board of Directors (BOD) of Solta, lead an interesting conference call yesterday, outlining Solta's plan to gain profitability in the next year. This is standard talk and expected when companies are in the midst of working out a deal to either sell to, or merge with another company. Simply stated, business must continue as usual, and many retail investors fail to understand this. Solta has great assets, but too many of them, and not a strong enough infrastructure to realize its full monetary potential.

Solta's Vaser Shape should do much better

Vaser Shape, which Solta acquired from Sound Surgical earlier this year, is the main product we believe would bring a potential acquirer top value. In Q3 2013, Solta was only able to realize $4M in revenue from the product.

Vaser Shape is a non-invasive technology combining ultrasound and massage therapy for a safe and effective treatment. Used in concert, the specialized ultrasound diathermy and zonal lymphatic massage hand pieces heat the fatty tissue layer below the surface of the skin, increase local blood circulation and temporarily reduce the appearance of cellulite.

The system includes a lymphatic drainage hand piece and an ultrasonic hand piece with dual transducers that emit a double beam of controlled, overlapping ultrasound energy to smooth and shape the body by heating the fatty tissue layer.

When considering $4M the product took in last quarter, we should compare this to ZELTIQ Aesthetics' (NASDAQ:ZLTQ) CoolSculpting System. CoolSculpting uses a targeted cooling process that kills the fat cells underneath the skin, freezing them to the point of elimination. Vaser Shape uses Ultra-Sound and acts more like a much safer and effective form of lipsuction.

While less invasive than Vaser Shape, CoolSculpting takes many more treatments to garner similar results to Vaser, and many question those results as being adequate. CoolSculpting is more of a "niche" product these days, which is a testament to the fine job Zeltiq's marketing department has been doing.

We have found in our research that most patients prefer a one-shot deal over multiple treatments.

However, according to Zeltiq's recent 10Q, the company generated revenue of $29.5 million and $75.8 million for the three and nine months ended September 30, 2013, respectively, compared to $17.9 million and $57.6 million for the three and nine months ended September 30, 2012, respectively - almost all from Cool Sculpting.

This shows just how far behind Solta is in this segment. Zeltiq's recently engaged a so-called "public offering" where in reality the offering entailed 4.5M shares being sold to JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) by certain "private investors" for $12.22 a share. Since then, Zeltiq's share price has risen to as high as $17.41, and currently trades at $16.49.

CoolSculpting and Vaser Shape are two entirely different procedures, so they are not direct competitors per-se. However, we can see how the good management at Zeltiq has done a wonderful job levering CoolSculpting, and we can also see the massive potential Vaser Shape has in the hands of top management with a correct company infrastructure - something Solta is lacking.

We do not think Solta on its own as an independent operator can compete with Zeltiq moving forward. In other words, we feel Solta's best move is to sell or merge with a company in a better position to maximize its true value.

Likely Companies that will acquire Solta

Valeant (VRX) has acquired around 25 smaller companies a year since 2010. These have been focused primarily in the aesthetics market.

Valeant has a sales force second to none, and can easily level the Solta product line into massive revenues moving forward. Last year, Valeant acquired Obagi Medical Devices for $24 a share, in an all cash deal worth over $375M. We wrote several articles on that situation, and accurately predicted that Obagi would be acquired soon - as mentioned, it was. Valeant is seeking to consolidate the segment and has the resources to do so, and has been doing so. We feel Solta should be acquired at a fully valued price of $275 to $300M, or roughly $3.50 to $3.75 a share.

ZELTIQ Aesthetics is another company we believe is interested in Solta, but not for a straight out acquisition, but a merger. as mentioned prior, the price action on Zeltiq has been very strange since its "public offering." We believe it's a good possibility that Solta will merge with Zeltiq, then Valeant buys the merged Zeltiq for $900M to $1B, or roughly $16 to $18 a share. Any merger between Zeltiq and Solta should equate to a share exchange of 1 share of Zeltiq for every 4 shares of Solta. The deal should come out to around $3.05 to $3.35 for Solta shareholders, depending on the price Zeltiq is selling for the morning any such deal might be announced. We encourage investors to carefully read the 8-Kof the public offering Zeltiq as engaged in, as well as reading Solta's latest 10Q, especially the exhibits to get a clearer picture of what might be transpiring here.

Other suitors with an outside shot at acquiring Solta.

Allegan (AGN) might be interested in acquiring Solta. Allegan is the well-known maker and seller of Botox, with a global market forecast to reach $2.9 billion by 2018, and the entire global market for facial aesthetics predicted to reach $4.7 billion. Solta recently announced a new product called the Thermage Total Tip 3.0. Thermage uses radio-frequency technology to non-invasively help smooth and contour the skin, as well as temporarily reduce the appearance of cellulite, in a single treatment with little to no downtime. Thermage seems to have synergy with Allergan's product line.

Nu Skin Enterprises Inc. (NUS)

Nu Skin as a very strong Asian presence and sales team. With Nu Skin's Dermatic Effects Body Contouring Lotion and Transformation anti-aging skin care systems. there could be some synergy between the companies. However, as mentioned, we see Allergan and Nu Skin as being long-shots to acquire Solta.

Conclusion and Prediction

We believe Zeltiq will merge with Solta. Afterwards, we believe Valeant will buy Zeltiq to further consolidate its super strong-hold on the aesthetics market globally. We feel the timing for all of this to take place is before April of next year.

Source: Solta Medical Officially Hires An Investment Banker, Merger Or Acquisition Seems Close

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.