CHP Merger Corp. (NASDAQ:CHPM) has entered into a definitive agreement to combine with medical technology company Accelus at an enterprise value of approximately $482 million, or 10.0x 2022E revenue.

Palm Beach Gardens, Florida-based Accelus is a commercial stage medical technology company that focuses on minimally invasive surgery as the standard of care in spine.

The combined company expects the deal to close in early 2022, but has yet to announce its proposed ticker symbols.

Transaction Overview

CHP brings $300 million into the deal from its current trust without any mention of a PIPE.

Accelus expects to get $285 milion in new cash onto its balance sheet through the deal while paying $15 million in transaction expenses. The SPAC’s sponsor must forfeit 2.1 million promote shares (28%) and 2.2 million of its warrants (27.5%) if the amount of cash delivered by the deal drops to between $150 million and $75 million after redemptions.

Existing CHP shareholders are expected to own 39% of the combined company with Accelus shareholders taking 54%. The SPAC’s sponsor is expected to hold a 7% stake at close.

The sponsor earnout includes 1.9 million shares vesting ratably at $13.00 and $16.00.

Quick Takes: Although most minimally invasive spine surgery (MIS) implants have mixed results and complications with clinical results, Accelus has significant clinical outcomes.

Accelus provides spinal implants with its proprietary Adaptive Geometry technology, resulting in a 94.7% fusion rate with zero adverse side effects and zero subsidence. For comparison, MIS implants typically result in nerve and vascular injuries as well as subsidence and non-union.

Adaptive Geometry is integrated across Accelus’ portfolio including its innovative expandable interbody platform FlareHawk, TiHawk, and Toro. This next-generation solution for MIS procedures utilizes proprietary expandable cage technology, featuring a bidirectional expansion of interbody devices. It will allow for a minimal insertion profile with maximum footprint and it was designed to improve safety and clinical outcomes, which was proven to be accurate with its high fusion rate and zero side effects.

Accelus is able to protect its innovations with over 25 U.S. patents and 24 international patents with a duration between 2033 and 2039. Not only that, but the company already has published clinical data including three peer reviewed, multi-center studies on FlareHawk, a peer reviewed robotic navigation study, and eight clinical studies that are in process.

The clinical studies on the FlareHawk were published in the International Journal of Spine Surgery and had three retrospective, peer-reviewed studies. As for its navigation and robotic targeting system, its peer-reviewed data was published in Cureus Journal of Medical Science and proved its efficiency through a significantly shorter procedure workflow duration. Some of Accelus’ current in-process and proposed clinical research includes robotic navigation endoscopic, pressure distribution comparison against commonly used interbody devices, and even robotic navigation time reduction.

Going forward, Accelus plans to use its focused strategy to unlock industry leading growth.  It hopes to do this by focusing on certain growth opportunities such as launching new product lines, with a target of 7-10 new product launches per year, expanding its regional sales team to capture share, and expand into international markets.

CHP values Accelus at 10.0x its 2022E revenue, a steep discount compared to its peers in the enabling robotic technology industry as well as its peers in high growth med-tech, which are valued at 25.5x and 15.9x 2022E revenue, respectively.  But, this is a slight premium to its peers in the spine and orthopedics sector at just 9.0x. This soon changes looking at 2023 as Accelus becomes valued at 6.0x 2023E revenue and its peers in spine and orthopedics are valued at 7.4x.

Accelus believes it will have $27.5 million in revenue by the end of this year, but expects that number to climb to $81 million by 2023.  The company made $17 million in revenue in 2020.

Sales of its existing product lines are anticipated to be the largest contributor to growth, largely driven by pull-through sales, which are comprised of sales by core products from robot placements. Accelus claims that revenue from these robot pull-through sales will account for 20% of total sales by 2025 when it expects to see $176 million in revenue.

Click here for the full investor presentation.

ADVISORS

• Piper Sandler is serving as exclusive financial advisor to Accelus.
• Cadwalader, Wickersham & Taft LLP is serving as legal advisor to Accelus.
• Credit Suisse is serving as financial and capital markets advisor, and J.P. Morgan Securities LLC is serving as a capital markets advisor to CHP Merger Corp.
• Ropes & Gray LLP is serving as legal advisor to CHP Merger Corp