Thoughts on SeaSpine Holdings

On April 1, Integra Life Sciences (NASDAQ:IART) filed a 10-12B, proposing to spinoff SeaSpine Holdings (proposed ticker NASDAQ:SPNE). Part of the rationale of the spinoff was that the company fielt that the market did not properly value its shares.

For 2014, IART had operating income of $65.54m SeaSpine had been making losses of $20.3m. So, if you separate out the businesses, IART would be making about $83.4m in operating profits. IART has a market cap of $2120m, so its revenues to operating profits would be about 25 (2120/83.4).

That still looks pretty high to me, and I struggle to see an investment opportunity in either IART or its spinoff. SeaSpine looks to have never made a profit.

If anyone can offer a different take on the situation, I’d be glad to hear it.

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About mcturra2000

Computer programmer living in Scotland.
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4 Responses to Thoughts on SeaSpine Holdings

  1. K2 says:

    I concur.

    I calculate EV/PF IART standalone mgmt adj Q1’15 annualized FCF of 11.6-15.3x. That assumes EV/2014 SeaSpine revenue multiple range of 1.1-5.5x based upon comps in the 10-12b.

    11.6x seems somewhat cheap to relative market valuations. 15.3x seems fully priced or rich to relative market valuations. I personally only like companies that trade at <10x FCF (hard, if not impossible, to find in current mkt).

    It doesn't appear that there is any obvious cheapness even assuming all of management's adjustments that are embedded in the above calculations.

    Happy to share my calc's if you care.

    • mcturra2000 says:

      Very interesting, thanks. Your calcs on FCF look better than my original valuation. Stripping out revenues from SPNE, it looks like IART had revenues of $789.6m in 2014 (928.3-138.7) and $683.4m (830.9-147.5). That’s a growth of about 7.5% pa. If I don’t strip out SPNE, then the revenues are growing at 5.7% pa.

      SeaSpine’s revenues actually seem to be faltering, not to mention that they’re making losses, which probably explains why IART want to spin off the company.

      So I guess what I’m saying is this: would one want to invest in a company, paying 11.6-15.3x FCF for a company that is growing revenues at 7.5%.

      Is that your take on it, too?

      • K2 says:

        Yes, that is my take.

        I was only trying to find a bull case using more aggressive adjusted Q1 Numbers. Despite using those, I still come to the same conclusion; there isn’t anything obviously compelling here.

        Drop me your email and I can send the sheet. Pretty simple. I have a bloomberg, so just grabbed rev multiples off there for the comps.

    • mcturra2000 says:

      My email is: alt dot mcarter at gmail dot com

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