Intermagnetics completes acquisition of Invivo, predicts strong future growth

Deal may presage expansion, more acquisitions

Intermagnetics has succeeded in its plan to diversify beyond superconducting magnets and coils. The company completed Jan. 27 the acquisition of Invivo, a maker of specialty patient monitors, notably ones compatible with MR scanners. Invivo also offers wireless patient monitors that can be networked into centralized monitoring stations.

Intermagnetics' largest business sector addresses the design and manufacture of superconducting magnets for MR scanners, as well as MR radio-frequency coils. The expansion into patient monitoring will substantially broaden Intermagnetics' base. Its largest customer, Philips Medical Systems, currently accounts for about 80% of Intermagnetics' overall revenue. With the integration of Invivo, that percentage drops to 50%.

"We have begun a major transformation," said Glenn H. Epstein, chairman and CEO of Intermagnetics. "While the bulk of our current business has traditionally focused on marketing to large equipment manufacturers, Invivo gives us a strong global presence among end users of MR equipment, in addition to the broader markets of radiology and other diagnostic modalities."

Epstein hopes to use this expanded presence to boost the sale of MR coils made by its subsidiary, Milwaukee-based Medical Advances. The Invivo sales force will drive the direct marketing and sales effort behind MR coils as part of a joint effort with the subsidiary.

"Our RF coils business will now grow from a fairly modest sales force to something that is quite extensive," he said. "Medical Advances will remain a separate business, but its sales channels will be fulfilled principally through Invivo, which will leverage a customer base that they regularly call on."

Invivo is expected to boost Intermagnetics' fiscal 2005 revenues 50% above current levels to about $250 million. Earnings are expected to jump by about the same percentage to a range between $1.20 and $1.30 per share, including an estimated noncash charge of about 15¢ for a performance-based restricted stock plan involving senior management.

Epstein predicted that the core business will grow about 20% in FY05. This growth is about double the sustainable rate, however. The current fiscal year, which will end in May, was impacted by a change in the way Intermagnetics supplies magnets to Philips Medical Systems (SCAN 5/28/03), which set the benchmark lower than it would otherwise have been.

"The core business is growing nicely at about 10%, which is at or slightly better than the market for MR scanners," he said. "Product volume (of magnets) is looking pretty good, but the mix has shifted a bit more toward standard 1.5T than 3T."

Before making its bid to acquire Invivo, company deal makers screened dozens of potential candidates. Epstein and colleagues were looking for good growth potential, compatibility with Intermagnetics' financial model, and a net positive cash flow.

"Most important, we were looking for a lasting strategic benefit and value creation potential for shareholders," he said.

The effort to acquire Invivo entered the final stretch Jan. 23, when Intermagnetics had acquired about 96% of the outstanding Invivo common stock, much of which had been obtained at its tender price of $22 per share. The acquisition was financed with $90 million of Intermagnetics' cash balance, supplemented by $67 million drawn from a $100 million unsecured credit facility, leaving the company with about $15 million in cash or short-term equivalents.

Operating cash flow of the combined business is expected to remain strong, and the company anticipates ongoing reductions in bank debt. By paying down this debt, Intermagnetics will keep the ability to borrow again when necessary, Epstein said.

"We expect this acquisition to provide a springboard for both internal growth and additional acquisition opportunities," he said.