Eden Prairie-based med-tech company Surmodics going private in $627M deal

Eden Prairie-based Surmodics’ stock soared Wednesday following news of its impending sale that will take the medical device company private.

Private equity firm GTCR, based in Chicago, will pay $627 million or $43 per share for Surmodics when the transaction closes in the second half of the year, pending shareholder and regulatory approval. Health care and technology make up a main sector of GTCR’s focus, with the firm announcing in May 2023 that it had assembled an $11.5 billion fund to acquire companies in the technology, health care, financial and consumer services sectors. The firm currently manages $40 billion in equity capital.

Surmodics’ stock closed Tuesday at $35.10 per share, but it closed up 19.9% on Wednesday, bringing it close to the price that GTCR is paying.

Surmodics makes components for medical devices, including coatings and in vitro diagnostic tests. Despite sales declining 6% to 8% currently, the company recently projected revenue of $122 million to $124 million for this fiscal year.

“We believe that it makes more sense for a private equity firm to acquire [Surmodics] than a strategic since it generates >29% of its sales from coatings sold to other medical device companies, and we believe that its customers would be unlikely to purchase coatings from a competitor,” wrote Mike Matson, senior research analyst with Boston-based Needham & Co., in a research note on the transaction. “We believe that the deal fairly values [Surmodics] ... and do not expect a higher offer or antitrust issues.”

Business with Medtronic accounted for 27% of Surmodics’ revenue last year. Another 10% of it sales came from Abbott.

In a filing with the U.S. Securities and Exchange Commission, Surmodics said it’s “business as usual” for the company despite the sale.

“I am confident that this transaction will position the company to continue to deliver compelling benefits for physicians, patients and customers going forward,” said Gary Maharaj, CEO of Surmodics, in a statement.

In February 2023, Surmodics cut 13% of its staff in response to delays from the U.S. Food and Drug Administration in approving its SurVeil drug-coated balloon. The FDA approved the device in June 2023. Surmodics had previously cut a deal with Abbott to sell the SurVeil device, used to treat peripheral artery disease by re-opening blocked or narrowed arteries in the leg.

“We think a private equity deal makes sense. GTCR is a well-known, experienced player,” said Brooks O’Neil, senior research analyst with Minneapolis-based Lake Street Capital Markets.

O’Neil added Surmodics wasn’t publicly for sale, so he wouldn’t be surprised if “those guys at GTCR approached Surmodics” with a deal.

As of Sept. 30, Surmodics had 376 employees, 101 of whom are outside of the U.S. thanks to Surmodics acquiring Ireland-based Vetex Medical in 2021 for $39.9 million.

“We look forward to partnering with the Surmodics team to continue to expand the company’s offering and broaden its reach,” said Sean Cunningham, managing director at GTCR, in a statement.

A representative with GTCR declined to comment further.