When Uroplasty Inc. changed management a year and a half ago, analysts expected the changes would spur the Minnetonka company to broaden its catalog of devices for urology and voiding disorders.
So it was bit of a surprise Monday when Uroplasty announced that it was changing its name to Cogentix Medical and acquiring a New York-based maker of equipment for flexible digestive-tract scopes called Vision Sciences Inc., while remaining based in Minnetonka.
"This deal is very consistent with that idea," said Brooks O'Neil, a senior research analyst with Minneapolis-based Dougherty & Co. "We've been thinking that the changes … would likely lead them to seek to add products to the salesman's kit that would more fully leverage their distribution capability and make a bigger company."
The combined company will almost double Uroplasty's existing market cap. Uroplasty, with annual revenue of $25 million, has a market capitalization of about $53 million, based on share prices Monday. Vision Sciences recorded $14 million in sales last year and is worth about $40 million as a company.
Executives said they expect a larger sales force to help the combined company grow market share for Vision's nonsurgical digestive-tract imaging in physician's offices and ambulatory surgery centers. Combining Vision's 12 U.S. salespeople with Uroplasty's 44 should lead to revenue growth of between 11 percent and 14 percent in a fiscal year that would begin April 1, pending standard regulatory and shareholder approvals of the deal, they said.
Uroplasty shares rose 8 cents, to $2.43, Monday; Vision Sciences stock dropped 15 cents, to $0.86 a share.
Uroplasty executives said in a conference call with investors Monday that they're particularly excited about Vision Sciences' EndoSheath technology, a proprietary microbial barrier that keeps flexible endoscopes sterile.
Vision Sciences has moved more than 5 million EndoSheath units at prices that range between $30 and $40 apiece, executives said. Uroplasty officials said the sheath's ability to prevent cross-contamination between patients makes it applicable to related medical specialties.
"We are confident that offering Vision Sciences' urology product lines to our core urology customer base will also make us more meaningful and valuable to those customers," Uroplasty chief executive Rob Kill said in a press statement.
Kill will become president and CEO of Cogentix, and Uroplasty's chief financial officer, Brett Reynolds, will be CFO of the new company. The new company's board will consist of Uroplasty's five directors plus three from Vision Sciences.
Kill and Reynolds were both appointed in 2013. On the board of directors, the most recent changes came in October when Uroplasty saw two of its board members step down and a new member, Allina Health CEO Ken Paulus, join.
On Monday, executives characterized the acquisition as a merger for legal purposes instead of an acquisition, even though current Uroplasty management will run the company and Uroplasty shareholders will own 63 percent of the company's 128 million shares.
O'Neil noted that it was difficult to put a price on the transaction because of its unusual structure.
Under the definitive merger agreement approved by the management of both companies, shareholders of the larger firm will receive stock in the smaller company — each share of Uroplasty stock will be exchanged for 3.6331 shares in Vision Sciences.
Since the deal is transacted entirely in stock, the total value won't be determined until Uroplasty's stock ceases to trade on the Nasdaq exchange.
Joe Carlson • 612-673-4779
Twitter: @_JoeCarlson
