DSM Buys Kensey Nash for $360M

Dutch materials manufacturer Royal DSM NA is serious about its future sales goal. So serious, in fact, that the Heerlen, Netherlands-based firm is willing to spend a considerable amount of money to achieve its ambition.

In a move designed to boost sales and expand its footprint in the biomedical market, DSM is purchasing regenerative medicine developer Kensey Nash Corporation of Exton, Pa., for $360 million in cash, or $38.50 per share. The deal is expected to close by June 30.

Kensey Nash manufactures medical devices for use in cardiology, sports medicine, orthopedic, spinal and general surgery. The company employs about 325 people and expects to end its 2010 fiscal year (on June 30) with $90 million in net sales. Kensey Nash executives are confident that sales could reach $100 million in fiscal 2013, a total that could help DSM achieve its goal of 1 billion euros ($1.3 billion) in sales by 2020.

Besides boosting its bottom line, the Kensey Nash purchase also will enable DSM to strengthen its biomedical footprint. Once the deal is finalized, DSM will become one of the largest biomedical materials suppliers in the United States.

“As life expectancy continues to increase and people want to remain physically active, growth in the biomedical materials market is expected to remain high,” DSM Board Chairman and CEO Feike Sijbesma said. “Biomedical is one of the key areas where DSM is able to fully leverage its unique science-based expertise in life sciences and materials sciences. With this acquisition, we are putting DSM Biomedical clearly on the map as the second new growth platform for DSM in addition to our Bio-based Products & Services business as we continue to create value for all stakeholders by providing innovative, sustainable solutions to the world’s greatest challenges.”

DSM Chief Innovation Officer Rob van Leen said the purchase will “open up new markets” for Kensey Nash products, while Kensey Nash President and CEO Joseph Kaufmann claimed the merger will enable the two companies to innovate together and further expand the combined business.

DSM spent roughly one year strategizing its approach to the Kensey Nash purchase and is paying an enterprise value multiple relative to earnings of about 10 times, based on this year’s expected results, rising to 11 to 12 times on next year’s anticipated $36 million in earnings before interest, taxes, depreciation and amortization.

“In acquisitions in the highly innovative fields we sometimes might have to pay slightly higher multiples but the growth of the business and growth of profitability is so strong,” Chief Financial Officer Rolf-Dieter Schwalb explained to investors on a conference call.

DSM intends to finance the acquisition from existing cash. The deal is not subject to a financing condition. Citigroup advised DSM on the purchase, with Cleary Gottlieb Steen & Hamilton providing legal counsel.

DSM, however, may not want to part with its legal team just yet: Just one week after the acquisition was announced, Kensey Nash stockholder Hilary Coyne sued the company over the purchase price. In a suit filed May 10 in Delaware Chancery Court in Wilmington, Coyne claims investors are being shortchanged. Kensey Nash directors, she contends, have shirked their responsibility by failing to seek the best possible price for shares.

“The buyout is a product of a flawed process that is designed to ensure the sale of Kensey Nash to DSM on terms preferential to DSM, but detrimental” to shareholders, lawyers for Coyne said in court papers.

In her lawsuit, Coyne asks the judge to stop the sale and to certify the case as a class-action, or group, lawsuit to represent all shareholders.

Kaufmann did not respond to requests for comment, but Kensey Nash Board Chairman Walter Maupay Jr. insisted the transaction is in the best interests of company shareholders. “We believe this is a very positive outcome for our stockholders and maximizes the value of Kensey Nash’s regenerative medicine platforms.”