Eargo (NASDAQ:EAR) stock is jumping more than 50% on Oct. 30 after the company agreed to be taken private by Patient Square Capital. The deal is valued at $53 million.
Before the deal was announced, Eargo, which makes hearing aids, was trading for as little as $1.60 per share. Shares of EAR stock are now trading at $2.61 per share today but are still down more than 75% year-to-date (YTD).
EAR Stock: Eargo Agrees to $53 Million Take-Private Deal
Eargo went public in October 2020, raising $141 million. The initial offering was priced between $14 and $16 per share. Back in January 2023, the company had a 1-for-20 reverse stock split but EAR stock was still headed back below $1 when Patient Square called. Eargo lost more than 99% of its value while public.
Eargo wound up being hurt by U.S. Food and Drug Administration (FDA) rules allowing direct sales of hearing aids. Just before the Patient Square deal was announced, Eargo expanded its relationship with Best Buy (NYSE:BBY), getting displays in 500 stores. That announcement sent shares up 16%.
Since the FDA cleared direct sales, the hearing aid market has become crowded. Eargo products can cost over $2,900 but include an app connecting them to users’ phones.
Eargo had its best year in 2020, with sales of $69 million and a loss of $40 million. Sales in 2023 are estimated at $41 million with a loss of $141 million. The company settled a lawsuit over false claims in 2022, paying $34.37 million.
Patient Square now has almost a dozen companies in its portfolio. Most are drug developers like Apollo Therapeutics, Resolve Biosciences and Enavate Sciences. The portfolio also includes a telehealth company, Access Telecare.
Patient Square was launched in 2020 under Jim Momtazee, who previously ran the healthcare investment unit at Kohlberg Kravis Roberts & Co. (NYSE:KKR).
According to Fierce Healthcare, private equity companies have pumped over $750 billion into the U.S. healthcare system over the last decade. They have been criticized for creating monopolies and raising prices.
Looking forward, Patient Square needs to get costs and prices down to make money from Eargo, as consumer markets are more price-sensitive.
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On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
