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Biomet IPO Looks Like a Healthy Deal

Investors should like the company despite a large debt load


Biomet, which makes orthopedic devices, has filed for an IPO. The deal is likely to find lots of buyers, because the market has perked up for medical deals — as seen with Surgical Care Affiliates (SCAI), Quintiles (Q) and Envision Healthcare (EVHC).

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Founded in the late 1970s, Biomet is a top player in its space. Some of its products include orthopedic joint replacement devices, bone cements and accessories, dental reconstructive implants, electrical bone growth stimulators and spinal products.

And yes, the growth has been fairly steady, which should boost the fortunes of a Biomet IPO. For the six months ended Nov. 30th, revenues went from $1.5 billion to $1.56 billion while net income swung from a loss of $97.7 million to a gain of $36 million.

Going forward, the Biomet IPO should also benefit from strong secular trends, especially with the aging populations in the U.S. and Europe. The company has also been getting aggressive in Asian markets.

However, there are certainly some risks. Keep in mind that the industry is sensitive to macroeconomic changes. For example, during the recession in 2009, Biomet saw business fall off. As should be no surprise, many people decided to push off expensive medical procedures.

Something else: Biomet does have a hefty debt load, at about $5.9 billion. This came from a $11.3 billion leveraged buyout in 2007 that was led by Blackstone (BX), KKR (KKR), TPG and Goldman Sachs (GS). Although, as seen with other private equity deals — like Brixmor (BRX), Hilton (HLT) and SeaWorld (SEAS) — Wall Street is not adverse to debt. If anything, the Biomet IPO should help pare that down.

Besides, the medical device sector has seen a nice rally lately:

Company Ticker 6-Month Return
Stryker SYK 18%
Zimmer ZMH 23%
Smith & Nephew SNN 29%
Conmed CNMD 41%
ArthroCare ARTC 49%

As for the Biomet IPO, the company has yet to set the terms on the offering or select a stock exchange, although the company has proposed the ticker “BMET.” The lead underwriters are Bank of America (BAC), Citigroup (C) and JPMorgan Chase (JPM).

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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