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Company: Integer Holdings Corp (ITGR)
Business: Integer Holdings Corporation is simply a aesculapian instrumentality declaration improvement and manufacturing company. Its brands see Greatbatch Medical and Lake Region Medical. The company's Cardio & Vascular merchandise enactment offers a scope of components, subassemblies, and finished devices utilized successful interventional cardiology, structural heart, bosom failure, peripheral vascular, neurovascular, interventional oncology, electrophysiology, vascular access, infusion therapy, hemodialysis, urology and gastroenterology procedures. Its interventional cardiology portfolio is focused chiefly connected the design, improvement and manufacture of catheter and wire-based technologies intended to diagnose and dainty cardiac disease. Its electrophysiology products see devices utilized by electrophysiologists and interventional cardiologists for the attraction of cardiac arrythmias, specified arsenic atrial fibrillation.
Stock Market Value: $3.01B ($85.78 per share)
Integer Holdings successful the past 12 months
Activist: Irenic Capital Management
Ownership: greater than 3%
Average Cost: n/a
Activist Commentary: Irenic Capital was founded successful October 2021 by Adam Katz, a erstwhile portfolio manager astatine Elliott Investment Management, and Andy Dodge, a erstwhile concern spouse astatine Indaba Capital Management. Irenic invests successful nationalist companies and works collaboratively with steadfast leadership. The firm's activism has frankincense acold chiefly focused connected strategical activism, recommending spinoffs and income of businesses.
What's happening
On Dec. 18, it was reported that Irenic took a presumption of much than 3% successful Integer Holdings and is calling for a committee refreshment and the exploration of a imaginable merchantability of the company.
Behind the scenes
Integer Holdings is simply a aesculapian instrumentality declaration improvement and manufacturing enactment ("CDMO"). The institution acts arsenic an outsourced plan and improvement spouse for archetypal instrumentality manufacturers ("OEMs"), specified arsenic Medtronic, Boston Scientific and Johnson & Johnson. When processing caller aesculapian devices, OEMs typically outsource definite components to 3rd parties, who past go liable for those parts for the full lifecycle of the product. Integer is the largest of specified companies and the lone publically traded pure-play aesculapian instrumentality CDMO. From an extremity marketplace perspective, the institution specializes successful cardiovascular and neuromodulation applications, which are mostly considered to beryllium precise precocious prime due to the fact that of their interventional, and truthful highly sticky nature. Moreover, the stringent regulatory and FDA support requirements for these markets make precise precocious barriers to change. However, contempt this beardown marketplace presumption and competitory moat, the company's stock terms has struggled, down astir 40% successful the past year.
The catalyst for this downturn was Integer's astir caller quarterly report, which disclosed that the marketplace request for 3 circumstantial products fell abbreviated of the OEM's expectations, causing the OEMs to importantly trim their orders from Integer. As a result, Integer is present facing an aerial pouch successful maturation from 2026. While the institution typically targets 6% to 8% integrated growth, 2026 is present projected to beryllium betwixt -2% and 2%. Despite management's assurances that this is conscionable an aerial pouch and that maturation volition normalize successful 2027, the banal plummeted successful extended trading and successful the days that followed. A improvement similar this followed by the assurances of absorption mostly does not effect successful a 40% diminution successful a stock. The quality of Integer's concern brings on definite confidentiality constraints astir captious information. So, portion absorption tin springiness assurances, they cannot springiness transparency into its pipeline oregon the individuality of its customers, programs and platforms.
On Dec. 18, it was reported that Irenic Capital had a presumption of much than 3% successful Integer and is calling for a committee refreshment and to research a imaginable merchantability of the company. There are a fewer reasons wherefore a merchantability makes consciousness here. First, arsenic the lone nationalist pure-play aesculapian instrumentality CDMO, Integer has nary nationalist comps and suffers from constricted capitalist and expert knowing and coverage. Second, arsenic discussed supra erstwhile a institution is required to person opacity astir its income and customers, it is overmuch easier operated and grown successful a backstage setting. Third, nationalist investors person constricted accusation with which to analyse the company, wherever a backstage purchaser taxable to a confidentiality statement would beryllium capable to execute diligence connected Integer's products, contracts and pipeline successful afloat detail, allowing them to underwrite aboriginal maturation with greater confidence. This is not mislaid connected Integer management. In 2024, they explored strategical alternatives and reportedly received bids astatine a premium to the stock terms astatine the clip (estimated successful the $110 to $115 per stock range). While the institution yet didn't prosecute a transaction, arsenic the banal subsequently rerated, the caller stock terms pullback suggests that backstage equity involvement should stay astatine a meaningful premium to today's valuation. For example, Teleflex Medical precocious announced the sale of its OEM concern astatine astir 4.7-times gross and 16- to 17-times EBITDA. Integer's largest competitors, Resonetics and Confluent Medical, are some PE owned and were acquired astatine valuations exceeding 20-times EBITDA. Extrapolating these multiples to Integer, which presently trades astatine astir 2-times gross and 12-times EBITDA, would equate to an acquisition terms northbound of $120 per share.
In evaluating this decision, Irenic would similar to spot a committee refreshment that would see directors with aesculapian OEM acquisition and fiscal acumen. This would adhd needed acquisition successful 2 areas integral successful making a transformative determination similar whether to merchantability oregon not. Even without a imaginable merchantability of the company, this is simply a committee that needs refreshment. Of the 11 directors, 5 volition person been connected the committee for astatine slightest 10 years by the adjacent yearly meeting. This includes the chair, Pamela Bailey, who has been connected the committee for astir 25 years. Introducing immoderate caller perspectives could materially amended the board's quality to measure the imaginable options to maximize worth for shareholders connected a risk-adjusted basis.
Irenic has important acquisition successful strategical activism, identifying companies that are struggling successful the nationalist markets and helping instrumentality spinoffs and income of businesses, often to backstage equity. Integer fits the firm's playbook perfectly. While we typically similar an activistic to measurement a standalone thesis against a merchantability path, it is hard to callback a institution with little justification for remaining successful the nationalist market. With the information deadline opening Jan.21, Irenic's adjacent steps – and whether the steadfast chooses to nominate directors – should look soon. However, portion Irenic is much than susceptible of moving a proxy contest, it has historically received committee practice via settlements, and we would expect the steadfast to beryllium looking for the aforesaid effect here. Moreover, fixed Irenic's strategically driven attack to its engagements, we would expect the steadfast to de-emphasize its governance concerns should the existent committee initiate a ceremonial strategical reappraisal and person credible and worth accretive offers.
Ken Squire is the laminitis and president of 13D Monitor, an organization probe work connected shareholder activism, and the laminitis and portfolio manager of the 13D Activist Fund, a communal money that invests successful a portfolio of activistic investments.
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