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Endo to buy American Medical Systems: The growth is in your pants

HedgeFundLIVE.com — This morning, before the market opened, Endo Pharmaceuticals Holdings (NASDAQ:ENDP) announced its intention to acquire American Medical Systems (NASDAQ:AMMD) for $30 in cash, an amount almost 35% above AMMD’s closing price on Friday.  The acquisition will cost ENDP $2.9B including the assumption of $312m in AMMD debt, Endo says they already have committed financing in place.  On a pro-forma basis, Endo says that the deal will be immediately accretive, add $0.60 to EPS in 2012, and $0.80 in 2013.  On a GAAP basis the deal will be accretive in 2013, the same year they expect to achieve $50m in synergies through SG&A and manufacturing efficiencies, as well as procurement savings.  Overall, it looks like the market applauds the deal with AMMD and ENDP stock finishing up on the day (although ENDP did finish well off its highs and was negative for some part of the day).

What’s interesting to me, however, is the nature of the assets being purchased.  As Endo’s best-selling product, Lidoderm, approaches patent expiration, the company has been diversifying its revenue stream.  Prior acquisitions of Indevus and HealthTronics provided Endo a foothold in the urology space, and the AMMD deal furthers the commitment to the pelvic region.  AMMD’s product portfolio includes products for “men’s incontinence, erectile dysfunction, BPH, and for women’s incontinence and pelvic floor prolapse.”  So why the focus on the nether regions?  Endo CEO Dave Holveck explained that a common source of pain and discomfort, literally, for the aging Baby Boomer generation is the pelvic area.  With health insurance expansion expected in 2014, Endo sees this as an exciting growth opportunity.  More old people means more pelvic issues, and more insurance, means more people who can pay for treatment.  Unfortunately, it seems that many of the health reforms expected in 2014 are on shakier ground as the federal budget saga plays out.

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