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In an unexpected turn of events, LCA-Vision (LCAV) recently agreed to be acquired by global skin health solutions company PhotoMedex (PHMD). The price tag is $106 million or $5.37 per share in cash. LCAV has retained the standard 'go-shop' provisions and will actively solicit additional bids over the next 30 days.

Analysis

While a substantial premium to the recent closing price, this offer short-circuits the long-term interests of LCA-Vision shareholders who have waited patiently to realize the benefits of a multi-year restructuring effort. Given their substantial NOL's; the solid balance sheet with $29 million in cash; best in class laser equipment; accrued brand equity in select U.S. markets, this deal leaves substantial value on the table to the detriment of shareholders.

Review of Assets

Netting out cash, this deal values LCAV at $50 million (adjusted EV). Assets include:

  • Over $100 million in state and federal NOL's.
  • Over $60 million in top-tier laser equipment and facilities (fully depreciated under GAAP).
  • Substantial intangible assets including brand equity from LasikPlus.

As discussed in November, LCAV is nearing an important cash flow inflection point for their core LASIK business.

Even with a modest recovery to 96,000 annual procedures as highlighted in the '13 IR slid deck, we have an operating model that generates $22 million in EBITDA-a fraction of the '07 cyclical peak volume of 197,000 annual procedures and $60 to $70 million EBITDA. Applying a conservative 5x multiple on a muddle through multi-year recovery, and assuming the balance sheet remains unchanged; we have a $110 million fair value (and this excludes accrued cash from operations).

Based off the unanimous consent to a deal that amounts to a $50 million adjusted EV, shareholders might conclude that either:

  1. Something is looming on the LCAV horizon that has accelerated discussions to divest. We suspect battle fatigue internally and the continued consumer spending malaise may be among the contributing reasons.
  2. This may be a cunning gamble by The Board to flush out potential acquirers while establishing a price floor ahead of the Q4 earnings call.

While LCA's motivation for shopping these assets is commendable, the timing is disappointing. Given this bargain price of $5.37 per share, we can only hope The Board of Directors exhibits equal enthusiasm towards the would-be suitors who will undoubtedly surface in the coming 30 days.

Source: LCA-Vision Acquisition: Surrender, But Don't Give Yourself Away

Additional disclosure: This article is for general informational purposes only and should not be construed as a solicitation or recommendation to buy or sell securities.

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