Sectra and Philips MicroDose acquisition deal:
Q&A for Investors and journalists
What is the news?
Philips has acquired Sectra’s mammography modality business operations.
Sectra and Philips have also agreed that Sectra, as a distributor of Philips, will continue to sell and service Sectra MicroDose in Australia and New Zealand.
What is the purchase price?
Philips has paid EUR 57.5 million on an enterprise value, i.e. a debt free/cash free basis. The agreement includes an additional potential earn-out of up to EUR 12.5 million in accordance with specially agreed terms and conditions. The earn-out can become relevant up to five years from the first calendar quarter after the closing day.
What exactly is and is not included in the agreement?
The legal entity Sectra Mamea AB, which includes facilities for production, R & D and marketing in Solna, intellectual property and all personnel employed at Sectra Mamea AB. The deal also includes the Sectra MicroDose sales and service staff in Benelux, Germany, Norway, Spain, Sweden, the UK and the US.
In Australia and New Zealand, in addition to its own medical imaging IT business, Sectra will continue to sell and service the MicroDose modality under a distribution agreement with Philips. The deal does not include other Sectra mammography or women’s health solutions, such as mammography PACS and RIS or Sectra’s service for osteoporosis assessment.
Why have Sectra and Philips come to this agreement?
This deal has great advantages for all parties. It is a win-win-win deal.
- Sectra will free up resources and funds that can be used to continue to develop and further expand its operation in medical imaging IT, where Sectra is a major player already today.
- Philips will in accordance with its strategy to expand its Woman Healthcare portfolio, strengthen its business with a truly innovative product and a very skilled team of employees.
- MicroDose customers and the MicroDose modality business will benefit from the resources, knowledge and vast distribution and service network that Philips, as one of the largest healthcare modality providers in the world, can add to the further development of the MicroDose modality offering.
- The Sectra MicroDose technology will now save even more women lives, since it will be much faster spread around the globe through Philips’ vast distribution network.
What date was the formal takeover?
The deal was fully closed August 31.
What happens now?
Sectra will expand its large world-leading business in medical imaging IT, mammography PACS and RIS included, as well as developing and commercializing new innovations in the way we have successfully done with the MicroDose technology. The transaction enables Sectra to also look toward acquisitions in key markets.
What effect does this agreement have on Sectra’s accounts?
In the financial reports, the legal entity Sectra Mamea AB will be disclosed as discontinued operation.
How will the deal affect Sectra’s profit development?
Excluding the Sectra MicroDose modality operations conducted in the legal entity Sectra Mamea AB, Sectra’s Medical systems business accounted for a profit margin of 10% fiscal year 2010/2011. The Sectra MicroDose mammography modality operation was not yet profitable, Sectra Mamea AB accounted for an operating loss of SEK 64 million fiscal year 2010/2011.
How does the deal affect Sectra’s net sales?
The legal entity Sectra Mamea AB accounted for net sales of SEK 127 million in fiscal year 2010/2011, excluding sales margin from products, spare parts and services sold through internal country organizations. Except for Australia and New Zealand, revenue from new sales of MicroDose will cease immediately after the formal takeover. Sectra will continue to provide services and spare parts to Sectra MicroDose customers for the duration of the existing contracts or until otherwise agreed with customers. Revenue from such contracts will decline in pace with the contracts expiring or being taken over by Philips.
What’s the duration of the service and support agreements related to MicroDose that Sectra has with its customers and partners?
Current service and support agreements related to Sectra MicroDose Mammography typically have a duration of two year.
How does this deal affect Sectra’s cash flow?
The Sectra Group’s cash flow for fiscal year 2010/2011 was SEK 18 million. The cash-flow for the legal entity Sectra Mamea AB was negative SEK 76 million and adjusted for cash flow from the legal entity Sectra Mamea AB, the Group’s cash flow was SEK 94 million.
How will the deal effect Sectra’s financial position?
Excluding the possible earn-out considerations, Sectra expects to generate a capital gain of SEK 300 million after tax. A direct effect of the agreement will be nonrecurring impairment of intangible assets of SEK 10 million.
Estimation of the largest effects on Sectra’s balance sheet items, excluding the possible earn-out, as a result of the deal:
| SEK Million | The Sectra Group April 30, 2011 |
Estimated change at transaction date |
|---|---|---|
| Cash and cash equivalents, when internal liabilities are settled |
211 | +450 |
| Total assets | 934 | +300 |
| Shareholders’ equity | 569 | +300 |
How does the deal affect Sectra’s key figures?
The table below shows how the Sectra Mamea AB business operation that will be divested would have affected the Sectra Group's key ratios if it had been sold prior April 30, 2011.
| April 30, 2011 | ||
|---|---|---|
| The Sectra Group | Proforma, the Sectra Group | |
| Net sales, SEK M | 911 | 784 |
| Operating margin, % | 1 | 9 |
| Equity assets ratio, % | 61 | 73 |
| Earnings per share, SEK | -0.26 | 2,56 |
| Number of employees | 606 | 496 |
How will the deal affect Sectra’s financial goals?
Sectra still has the same financial objectives:
- To achieve an EBIT margin of not less than 15%.
- To grow an average of 15% annually over a seven-year period.
- To maintain an equity/assets ratio of at least 30%.
How is this agreement affecting Sectra’s medical IT business?
This agreement gives us increased opportunities to:
- Grow and further develop our large medical imaging IT business (PACS & RIS) including mammography IT solutions, as well as our operations within orthopaedics, osteoporosis assessment and rheumatology.
- Explore new growth areas within medical Imaging IT. We have always had close cooperation with customers and researchers, which has provided us with extensive experience in the commercial development of new technology. Our future business opportunities include development and commercialization of new innovations that will benefit customer productivity and quality of patient care.
How is this agreement affecting the future for Sectra’s business operation within Secure communication systems?
This deal has no direct impact on our business operation within Secure Communication Systems other than that it further increases the financial strength of the Sectra group, thus also benefitting this business operation.