Gynemed GmbH acquired by Hamilton Thorne for EUR 13.9m

Gynemed GmbH, a Lensahn, Germany-based manufacturer and distributor of consumables and equipment for the in vitro fertilization clinic and laboratory markets, has been acquired by Hamilton Thorne (TSX VENTURE:HTL), a Beverly, Massachusetts-based maker of precision laser devices, for about EUR 13.9m (USD 15.1m).

The seller was advised by Dr. Claus Michelfelder of CMC Medical AG. Bloom Burton Securities acted as financial advisor for Hamilton Thorne in connection with the Transaction and acted as sole agent in connection with the Brokered Private Placement.

The aggregate cash component of this transaction was financed with Hamilton Thorne’s cash on hand, an expanded secured credit facility from its existing senior lender Middlesex Savings Bank and through brokered and non-brokered private placements of common shares.

Press release:

Hamilton Thorne Ltd. (TSX VENTURE:HTL) (“Hamilton Thorne” or the “Company”), a leading provider of precision instruments, consumables, software and services to the Assisted Reproductive Technologies (ART) and developmental biology research markets today announced that it has completed the acquisition of Gynemed GmbH & Co. KG (“Gynemed”) for total consideration of EUR 13.9m (approximately USD 15.1m) (the “Transaction”).
Gynemed, based in Lensahn, Germany is a leading manufacturer and distributor of consumables and equipment for the in vitro fertilization (“IVF”) clinic and laboratory markets. The Transaction results in the significant expansion of Hamilton Thorne’s product offerings and provides the Company with profitable operations in the well-established European ART market. For the year ended December 31, 2016, Gynemed had revenues of approximately EUR 8.8m (approximately USD 9.6m), net income of approximately EUR 2.2m (approximately USD 2.4m) and EBITDA of approximately EUR 2.6m (approximately USD 2.8m).

Key Benefits of the Transaction:

Addition of a profitable portfolio of premium products that are highly complementary to Hamilton Thorne’s existing product and service offerings

Expected to be materially accretive to revenue and EBITDA

Diversifies and increases product offerings and recurring revenue

Opportunity to expand Gynemed product offerings into additional international markets and to increase European sales of existing Hamilton Thorne products

Financed through the expansion of an existing credit facility and an equity offering

“We are excited to welcome our new partners from Gynemed to the Hamilton Thorne family. This transformative acquisition significantly enhances the size of our business and provides a new platform for continued growth of our business,” said David Wolf, President and Chief Executive Officer of Hamilton Thorne. “Gynemed is a well-established and respected provider of premium clinical and laboratory consumables and equipment in the European ART market that importantly shares our total commitment to the highest standards in customer service and quality. I am particularly excited that all of Gynemed’s current employees and leadership team will continue to operate and lead the growth of the existing Gynemed business and collaborate with our existing Hamilton Thorne team on several new avenues of growth for our combined operations. This acquisition enhances our presence in the very attractive European ART market, further diversifies our revenue base and increases our percentage of recurring revenues through the sale of consumable products, including Gynemed’s IVF cell culture media solutions.”

Dr. Fabian Sell, CEO of Gynemed commented, “My co-founders and I founded Gynemed 20 years ago to provide premium products backed by the highest quality scientific data. We are very pleased to be joining Hamilton Thorne who shares our belief in quality and service. We believe that the combination of the businesses can significantly accelerate the growth of both the Hamilton Thorne and Gynemed operations around the world. The management and board of Hamilton Thorne have been strong partners during this process and we look forward to the future of the combined Company.”

Acquisition Details

Pursuant to the Transaction, Hamilton Thorne indirectly acquired 100% of the partnership interests of Gynemed and its general partner under the terms and conditions of share purchase and transfer agreement (the “Purchase Agreement”) dated April 28, 2017 between a wholly owned subsidiary of the Hamilton Thorne, Gynemed’s general partner and the limited partners and shareholders of Gynemed and its general partner (the “Sellers”).

On closing, Hamilton Thorne paid aggregate consideration of approximately EUR 13.9m (approximately USD 15.1m). The consideration consisted of approximately EUR 8.6m (approximately USD 9.3m) in cash, the issuance of an aggregate of 5,525,523 common shares (the “Seller Shares”) of Hamilton Thorne at a deemed issuance price of CAD 0.57 per share with a deemed aggregate value of approximately EUR 2.1m (approximately USD 2.3m), and the issuance of 3 year, unsecured convertible debentures of Hamilton Thorne in the principal amount of approximately EUR 3.2m (approximately USD 3.5m) (the “Debentures”). The Debentures will accrue interest at a rate of 4.25% per annum and are convertible, at the option of the holder, into common shares of Hamilton Thorne (“Conversion Shares”) at a conversion price equal to the Euro equivalent of CAD 0.63 per Conversion Share based on a staged, 3-year optional conversion schedule (with 20%, 25% and 55%, respectively, of the outstanding principal amount of Debentures becoming convertible on each anniversary of the closing, subject to acceleration in certain circumstances). The Seller Shares will be subject to a 1-year escrow pending final calculation of certain closing adjustments and to satisfy any possible indemnity claims.

The seller was advised by Dr. Claus Michelfelder of CMC Medical AG.

Concurrent Financing Details

The aggregate cash component of this transaction was financed with the Company’s cash on hand, an expanded secured credit facility from our existing senior lender Middlesex Savings Bank and through brokered and non-brokered private placements of common shares of Hamilton Thorne (“Offered Shares) at a price of CAD 0.54 per Offered Share for aggregate gross proceeds of CAD 12.5m (approximately USD 9.2m) (the “Private Placement”). The expanded credit facility includes a new term loan of USD 4.0m (the “Term Loan”). The Term Loan bears interest at a rate of 4.49% per annum, amortizes over the life of the loan, and matures five years from the closing date. This Term Loan augments Hamilton Thorne’s existing USD 5.5m term loan put in place to finance the acquisition of Embryotech Laboratories, Inc. (approximately US 5.0 of which is currently outstanding) and the Company’s USD 2.5m line of credit (approximately USD 1.3m of which was outstanding as of closing).

The Private Placement included the issuance of an aggregate of 15,774,068 Offered Shares (approximately CAD 8.5m) on a best efforts agency basis (the “Brokered Private Placement”) and an aggregate of 7,374,073 Offered Shares (approximately CAD 4.0million) on a non-brokered basis (the “Concurrent Private Placement”).

Bloom Burton Securities Inc. (“Bloom Burton”) acted as financial advisor of Hamilton Thorne in connection with the Transaction and acted as sole agent in connection with the Brokered Private Placement. In connection with the Brokered Private Placement, the Agent received a total cash commission of CAD 583,029.77 and 1,079,684 non-transferable broker warrants (“Broker Warrants”). Each broker warrant is exercisable for a period of 12 months into one common share of Hamilton Thorne at a price of CAD 0.54 per common share.

The net proceeds were used by Hamilton Thorne to fund a portion of the cash component of the purchase price for the Transaction, and will be used for working capital and general corporate purposes and to fund potential future acquisitions.

All securities issued under the Private Placement and the Transaction will be subject to a four month hold period from the closing date under applicable Canadian securities laws. The Private Placement is subject to receipt of final acceptance from the TSX Venture Exchange.

Related Party Transaction

An aggregate of 2,600,000 Offered Shares representing gross proceeds of approximately CAD 1,404,000 were issued to certain “related parties” (as such term is defined in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”)) to the Company pursuant to the Non-Brokered Private Placement. In accordance with MI 61-101, such related party subscriptions constitute a “related party transaction.” The Company is exempt from the formal valuation requirement of MI 61-101 in connection with the related party subscriptions in reliance on section 5.5(b) of MI 61-101, as no securities of the Company are listed or quoted for trading on the Toronto Stock Exchange, the New York Stock Exchange, the American Stock Exchange, the NASDAQ stock market or any other stock exchange outside of Canada and the United States. Additionally, the Company is exempt from obtaining minority shareholder approval in connection with the related party subscriptions in reliance on section 5.7(1)(a) of MI 61-101, as the aggregate value of the related party subscriptions does not exceed 25% of the market capitalization of the Company.

Due to the expedited timeline of the Transaction and the Private Placement, there will be less than 21 days between the date the Company files its material change report in respect of the Private Placement and the Transaction and the completion date of the Private Placement.

Option Grant

The Company also announced that it has granted a total of 550,000 stock options to Gynemed’s employees to purchase common shares pursuant to the Company’s incentive stock option plan. The options are exercisable at CAD 0.63 per share, and expire ten years from the date of grant. Grants to employees vest over four years.