On April 6, 2018 NN, Inc. (NASDAQ:NNBR) announced that it would acquire Paragon Medical for $375 million cash. Indiana-based Paragon, a major orthopedic contract manufacturer, had 2017 revenues of $141 million and EBITDA of $24 million. The offer values Paragon at 15.6 times EBITDA on a nominal basis. NN stated that the multiple is best viewed as 9.3X because of significant Year 1 cost synergies including $7.8 million in Day 1 synergies. Details of the synergies were not presented.
NN has been an active acquirer of medical device supply chain companies. In 2015 NN bought Precision Engineered Products (PEP), a diversified manufacturer notable for its medical focus. In 2017 NN acquired DRT Medical, an orthopedic machiner. It also acquired Bridgemedica, a device design company, in February 2018.
While the Paragon deal multiple may appear high, there is a strategic rationale for NN’s actions. NN’s historic portfolio of industrial businesses have tended to be slower growth and lower potential profitability than medical suppliers. Last summer NN sold its precision bearing company for $375 million, cash still on the books as of year-end 2017. While NN may have paid a premium for Paragon, the move fits with their strategy of swapping businesses with a limited future for medical contractors. In that strategy NN joins Danaher, Teleflex, TE Connectivity, and ITW as American manufacturers changing direction and using significant resources to do so.
For detailed information on the transaction please view NN’s presentation:
http://phx.corporate-ir.net/phoenix.zhtml?c=110673&p=irol-Agreement
Please contact Tony Freeman at tfreeman@asfreeman.com or (917) 868-0772 with comments and questions.
