Cochlear acquires Swedish hearing implant company

Cochlear (ASX:COH) has signed an agreement to acquire Swedish hearing implant company Entific Medical Systems, owned by Swiss-Swedish group Nobel Biocare for SEK1,050 million (approximately AUD$195 million) to be paid with around AUD$40 million in cash and the remainder as bank debt to be raised in a combination of Euros and US dollars.

The enterprise value of Entific, which has treated more than 25,000 patients with its Baha bone anchored hearing implant system, is AUD$175 million.

The acquisition will provide diversification of Cochlear's range of implantable hearing systems to include solutions for patients with conductive hearing loss, a market of some 50,000 new patients annually, and single-sided deafness, which has an incidence of 200,000 new patients a year.

"The acquisition of an implantable hearing device company strategically expands Cochlear's reach in treating people with a significant hearing loss and where a traditional hearing aid just doesn't work," said Cochlear CEO Chris Roberts.

In both the cochlear implant market and the bone anchored implant market, Roberts said, the markets were not saturated, giving plenty of room for future growth.

"The limitation is not the number of patients, it's awareness," he said.

The acquisition forms a key part of Cochlear's strategy to expand into other hearing implant markets. Since late 2003, the company has been developing acoustic implants in a joint venture with Switzerland's Phonak group.

"We're interested in developing solutions for other types of hearing loss," Roberts said. "What we see as our opportunity in Cochlear is to be the global leader in innovative implantable solutions for hearing problems."

Roberts said the acquisition would immediately increase the cash earnings per share and the company would benefit from the substantial synergies in the distribution and customer bases, as well as from leveraging technology between both companies.

Entific's revenues last year were approximately AUD$40 million, with pre-tax earnings of $7 million. While slowing, the compound annual growth in revenue has been in excess of 35 per cent over the last five years, well ahead of Cochlear's long term average growth rate.

At the time of writing, Cochlear's shares were up more than three per cent, at $30.79. The company recently reported a first half profit rise of 10 per cent, and estimated its full year profit to be around seven per cent higher at $53-55 million, before the Entific goodwill charge of $3-4 million.