ACQUISITION SECURING LEADING POSITION IN NEURODIAGNOSTIC MARKET
Today Compumedics’ (ASX:CMP) Executive Chairman David Burton announced the successful completion of the company’s first acquisition. Compumedics has purchased Neuroscan, a world-leading neurological instrument business based in El Paso, Texas from a member of The Marmon Group of Companies.
Mr Burton said, “This is an important milestone in the growth and establishment of Compumedics as a world leader in the rapidly expanding markets of medical devices for sleep disorders and associated fields.”
Compumedics has agreed to pay up to US$4 million for the acquisition, which includes all intellectual property as well as selected assets and employees. The acquisition cost is payable over a period of two years with US$0.5 million dependent on the performance of the business. The delayed payments schedule means that Compumedics funds the acquisition through existing cash and modest debt facilities. Compumedics is currently debt free and new gearing levels will remain within comfort levels.
Neuroscan is a manufacturer and distributor of neurodiagnostic and neuroimaging systems, including electroencephalograph (“EEG”), electromyograph (“EMG)” and evoked potential (“EP”) systems, for measuring electrical signals generated by the brain and nervous system. Neuroscan was the first company to commercialise high-density EEG/EP recordings, electromagnet source localization, merging of multi-modal neuroimaging data (MRI, EEG, fMFR, PET and MEG), and recording EEG/EP information in the MRI environment.
These products are complimentary to Compumedics products and there exist substantial synergies between sleep diagnostics and EEG diagnostics. The acquisition gives Compumedics critical mass in both these markets. Research indicates that these markets are increasingly interlinked and often use common technology. Additionally both markets are driven by the same demographics with neurological disorders such as stroke, clinical depression and Alzheimer’s disease increasing with an ageing population. Some researchers have reported that 70% of first stroke suffers also suffer from sleep disorders. The combining of Compumedics and Neuroscan will present a united organization able to provide sleep, neurology and stroke testing laboratories, clinical and research equipment covering a range and sophistication like no other single organization.
Neuroscan’s previous year’s revenues were US$6.5 million. The acquisition more than doubles Compumedics high growth USA base and brings the company a step closer to the prospect of a listing opportunity on a USA stock exchange. More than 900 universities, hospitals and corporate and research nstitutes in forty countries use Neuroscan’s products. Neuroscan dominates the research EEG market with over 90% market share in the USA. It is beginning to leverage that position into the clinical EEG market that is many times larger. Neuroscan’s clinical EEG product, Scan LT is relatively new to the market and Compumedics sees its ability to leverage both Neuroscan’s EEG reputation and its own penetration of the clinical market to accelerate product acceptance.
Neuroscan was founded by Dr Steven Sands in 1986. The legacy of Dr Sands and his fine team will be perpetuated with even more focus on products for today’s market. Dr Sands will remain as President with the Compumedics acquisition and will retain overall management of Neuroscan. Dr Sands and his key management team have assisted in implementing a restructure as part of the acquisition which will see Neuroscan a strong and profitable operation within the first year of operation as part of the Compumedics group of companies. In addition, Compumedics CFO David Lawson will be seconded to the USA for at least two years to oversee the successful integration of the acquisition. Compumedics intends to move Neuroscan’s manufacturing facilities to Melbourne. Close to signing a lease for a new plant for existing manufacturing operations in Melbourne and combining the facilities will lead to some economies of scale for the company. This move gives Australia a boost in technology transfer and export action. In addition, Compumedics warehouse and distribution facilities in Minneapolis will be combined with Neuroscan’s facility in El Paso. These synergies should allow at least a 10% reduction in Neuroscan’s costs and make the acquisition EPS accretive in the first full financial year post acquisition.
Another significant advantage the acquisition will bring to Compumedics is its strong distribution network. Apart from its own direct sales force in North America, Neuroscan has 50 international distributors. Neuroscan’s excellent German infrastructure and support base will allow Compumedics to establish a base in Germany, the world’s second largest medical device market. Compumedics believes that this will rapidly accelerate its European penetration following in the footsteps of it successful North American business model which produced 140% growth in the last period.
Neuroscan is the leading supplier of software and equipment to the neurophysiological research market. Neuroscan comprises three divisions, Neuroscan Labs, Neuromedical Supplies and Neuroscan Medical systems. The research market segment demands the most technically advanced neurodiagnostic products available on the market and Neuroscan Labs is the leading player in the research market niche. New products have been added to Neuroscan portfolio by both acquisitions and organic growth. In September 1998, the Company purchased the Curry multi-modal neuroimaging software package from Philips N.V. and in April 1999, Neuroscan acquired Advantage Medical (AM) of Ontario, Canada, which added EMG to its product line.
Recognising the value of bringing its technical expertise to the clinical market, Neuroscan initiated a series of substantial investments in research and development over the past three years. The aim was to increase activity and penetrate that area of the marketplace. Following issues with acquisitions through to 2001 Neuroscan is only now in a position to capitalize on its clinical technology. Compumedics believes it can use its experience in moving from diagnostics research to clinical applications of sleep diagnostics on Neuroscan EEG research facilities.
Through Neuromedical Supplies, Neuroscan products are complemented by the sale of consumable items including electrodes, caps, software upgrades and other items. These supplies come from both innovative in-house development as well as third party suppliers. Compumedics believes these products can also be distributed to its existing sleep diagnostic customers further strengthening the relationships.
David Burton said, “Neuroscan will become an important contributor to Compumedics’ growth in revenues and earnings. The combined companies will acquire the critical mass needed to maintain the high growth profile that Compumedics has experienced over the last few years.”