Greatbatch (NYSE:GB) announced it will acquire Lake Region Medical for $1,73 billion, creating the world’s largest medical device contract manufacturer with sales of over $1.5 billion. The transaction, scheduled to close in the fourth quarter, breaks down between cash, stock, and debt assumption. Specifically:

• Lake Region shareholders will receive $478 million in cash
• Additionally, Greatbatch will issue 5.1 million shares of stock, giving the Lake Region shareholders approximately 17% of the combined entity
• Greatbatch will assume approximately $1 billion in Lake Region debt

The deal was estimated by industry watchers to have been done at 11.6X adjusted EBITDA.

The acquisition of Lake Region (which includes the former Accellent) by Greatbatch will prove a turning point in the evolution of the medical supply chain. The combination of two industry leaders in CV, neuro, MIS, and arguably ortho to form the first billion dollar plus contract manufacturer of its kind reflects the twin trends of OEM and supplier consolidation. While smaller contract manufacturers can thrive as specialists or by offering superior performance, it may be time for larger CMs to review strategy in light of this deal.

For more information on medical supply chain trends or to exchange views please contact Richard W. Sager at (585) 315-8413 or at rsager@manningadvisors.com.

Read more information on the transaction here.

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