Zeltiq Aesthetics And Solta Medical Are Likely In Play

Nov.14.13 | About: Solta Medical, (SLTM)

Written by Scott Matusow.

We frequently track and trade companies we feel are ripe to be acquired. If the due diligence is done correctly, trading these can be very rewarding. However, acquisitions are never a guarantee and very hard to time exactly. Frequently, prices can be manipulated by expert market makers and big money retail players.

Solta Medical (SLTM) announced on Monday of this week that it has hired Piper Jaffray as its investment banker/financial advisor to potentially explore a sale of the company. We estimate that the company has been in a black-out period for about seven weeks now, as executives from the company have stopped returning calls from investors. Additionally, during this time, Voce Capital Management has been very quiet after releasing a couple of letters to the public basically demanding the company be sold. Also, Voce has been very vocal that interim CEO Mark Sieckarek should not lead the company, even on an interim basis. However, Voce has been quiet on this front as well.

Interestingly enough, an analyst in a Reuters article identified Valeant (VRX) as a potential suitor to acquire Solta this past Monday. However, as of today, the reference to Valeant has been strangely removed from the original cached article, which can be read at the following link. The newly updated Reuters article, which has removed the reference to Valeant, can be read at its original link here - compare both articles. It seems to us that "someone" was not too happy about Valeant being speculated as a potential suitor to acquire Solta.

Therefore, we estimate the company has entered into the bid phase of the merger/acquisition process and are convinced that Valeant is close to putting in a "quiet" bid for Solta.

If Valeant acquires Solta, this could present a major business issue for Zeltiq Aesthetics (ZLTQ). Zeltiq's single asset, the CoolSculpting System, has been gaining a ton of traction lately in the market space. This is mainly because Solta's Vaser Shape and Liposonix do not have the proper marketing behind them. Solta used leverage to buy these assets, but so far have not been able to lever them into a profit. Basically, Solta took on far too many assets to properly market, while Zeltiq has but one main asset it markets successfully - CoolSculpting.

The so-called recent "public offering" Zeltiq has engaged in seems to us as a way to make room for a strategic acquisition. 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. We find this price action to be highly suspect. There is no way with its single asset that Zeltiq is worth its current market cap of $615M-plus. Also, there is little to no chance that Valeant would pay such a price for Zeltiq's single main asset, CoolSculpting. Valeant can gain entry into the device end of the aesthetics market by acquiring Solta for half that price. Valeant is an industry giant with a ton of cash to properly lever Solta's multiple device assets. This would definitely hurt Zeltiq in a major way, so Zeltiq cannot afford Valeant gaining Solta's assets. Therefore, we see based on the price action of Zeltiq and its current "offering" being non-dilutive that the company or better stated, underwriters JPMorgan and Goldman Sachs, are attempting to make room to merge with Solta. Any such deal should be a 1-4 share swap, with Solta shareholders receiving one share of Zeltiq for every four shares they own of Solta.

The retail market seems to not be expecting Solta's premium acquisition price to be a good one, as it's speculated in our view. Zeltiq's situation coupled with the fact that Valeant wants into this space creates a strong demand for Solta's assets.

The retail market is also wrongly considering Solta to be in worse shape than they are. With a few tweaks as the company has already engaged in, Solta can turn a profit and positive cash flow. Solta has recently cut down its work force, a new financing deal for $40M to replace the $27M in debt, with that strangely (or not) coming due on December 31st of this year. If Solta carries $40M in debt (we think it's a short-term loan for acquisition leverage), the interest is easily payable.

Solta's Projected Annual Income Statement

Revenue (TTM):


Revenue Per Share :


Qtrly Revenue Growth (yoy):


Gross Profit :




Net Income Avl to Common :


Diluted EPS :


Qtrly Earnings Growth (yoy):


Click to enlarge

We can see from above that even poorly managed and marketed, Solta's products still generate more than enough revenue to keep it floating above water.

It's worth noting that Solta's CEO Mark Sieckarek stated on this past Monday's earnings call that the company took in more revenue in October than last year's October. This indicates to us that Solta's plan to cut $12M in expenses is working for the time being. Sieckarek also stated that the company expects to be $8M net cash positive next year.

In other words, Solta is not going bankrupt. Strategic cutting of its work force suffices to keep them afloat and likely profitable next year, albeit a small profit.


In our last article, we mentioned that we believe that Zeltiq will acquire Solta via a share swap merger. However, we are hedging on that now seeing that Valeant is likely now involved. Zeltiq must not allow Valeant to acquire Solta, as doing so could seriously hurt its business. In fact, Zeltiq specifically mentions a Solta product (Liposonix and/or Vaser Shape) in its 10-Q as a risk factor for investors to consider when investing in Zeltiq. How much more of a risk would Solta's products have if a giant like Valeant acquired them and put up a ton of money to market them correctly? These factors should net Solta a better-than-expected acquisition/merger premium. We believe a deal to acquire/merge Solta is likely before the end of this year.

Disclosure: I am long SLTM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: 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.