On Tuesday, medical aesthetics equipment maker Solta Medical (NASDAQ: SLTM ) announced that it has agreed to acquire privately held peer Sound Surgical Technologies for $30.5 million -- $5 million cash, plus $25.5 million worth of Solta's own stock. Solta also may pay Sound Surgical's shareholders up to $9.5 million more in "earn outs" based on the company's performance in 2013.
Sound Surgical grew revenues 40% to $23 million in 2012, generating more than $2 million in earnings before interest, taxes, depreciation, and amortization. Solta says the acquisition should be accretive to earnings, exclusive of purchase and integration costs, within a year after closing.
Solta expects to close the transaction in Q1 2013. Sound Surgical CEO Daniel S. Goldberger has agreed to stay on as a consultant for six months post-acquisition to assist with the integration of the two companies.
At the initial purchase price of $30.5 million, Solta will be paying at least 1.33 times sales for Sound, a price roughly equal to the 1.3-times-sales valuation its own shares command. If, however, Sound earns out the extra $9.5 million, and the purchase price rises to $40 million in total value, the valuation would be closer to 1.74 times current-year sales, making for a significant premium to Solta's own valuation.