Shares of Globus Medical (NYSE:GMED) saw a modestly successful public debut on Friday. Shares of the medical device company ended their first day up 12% at $13.50 per share.
The public offering
Global Medical, a medical device company that develops products that promote healing for patients with spine disorders, sold 11.76 million shares for $12.00 a piece. The company sold merely 2.94 million shares, with shareholders selling another 8.82 million shares. Globus Medical raised $35.3 million in gross proceeds during the offering process. Based on the offer price of $12 per share, the company was valued at $1.09 billion.
Initially, the company and its bankers set an offer price range of $16-$18 per share, which got revised downwards amidst low demand. In total, the company sold 13% of its shares outstanding. At Friday's closing price of $13.50, the company was valued at $1.23 billion. The major banks that brought the company public were Goldman Sachs, Bank of America/Merrill Lynch and Piper Jaffray.
Global Medical is a "medical device company focused exclusively on the design, development and commercialization of products that promote healing in patients with spine disorders." Global Medical reported annual revenues of $331.5 million for its annual year of 2011, up 8% on the year before. The company reported net income of $60.8 million, or $0.67 per diluted share, compared to a net profit of $54.5 million in 2010.
For the first three months of 2012, the company generated $94.7 million in revenues, up 21% compared to the first quarter of 2011. The company reported a 22% increase in net income to $17.6 million, with diluted earnings per share coming in at $0.19.
For the three months ending June, the company expects sales of $95.5-$96.0 million, up 18% compared to the second quarter of 2011. Net income is expected to come in between $18.4-$19.0 million, up 18% as well.
The company holds $165 million in cash before the $35 million gross proceeds from the IPO for a cash position just north of $190 million. Globus Medical operates without debt, for a net cash position of roughly $190 million. This values the operating assets of the company at around $1.05 billion. Based on a rough annual revenue estimate of almost $400 million, and a annual profit estimate of $80 million, the market values Globus Medical at 2.5 times revenues and 13 times annual earnings.
Globus Medical's public offering was not a great success. While the offer price was set at the high end of its revised offer range of $11-$12 per share, initially the company aimed to sell its shares in the $16-$18 price range. Shares ended their first trading day at $13.50 per share, up 12% from the offering price. Shares traded as high as $14.65 intra-day on Friday.
For an industry outsider, it is difficult to evaluate the prospects of this company in the medical industry. However, Globus Medical's valuation at 2.5 times expected annual revenues and 13 times earnings, does not seem too stretched for a fast growing company. Furthermore, companies operating in the medical industry typically have good long-term growth prospects and traditionally trade at premium valuations.
With large medical companies, including Koninklijke Philips (PHG), Siemens AG (SI) and General Electric (GE), having long-term ambitions in the medical field, companies like Globus Medical always offer the potential of a buy-out at a significant premium. Opportunistic investors could step in for the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.