Trendlines makes largest exit since IPO with ApiFix deal

CATALIST-LISTED startup incubator The Trendlines Group has sold its 18.62 per cent stake in ApiFix, a scoliosis treatment company, to Nasdaq-listed OrthoPediatrics.

This marks Trendlines' largest exit by value since its initial public offering in 2015. Its second-largest exit was ETView in 2016.

OrthoPediatrics, which sells surgical systems to the pediatric orthopaedic market, is buying all of ApiFix through a combination of cash and shares.

According to an April 1 filing by OrthoPediatrics with the US Securities and Exchange Commission, the initial consideration for the deal will comprise US$2 million in cash and 934,783 new common shares in OrthoPediatrics' stock. Based on OrthoPediatrics' closing price of US$39.64 on March 31, that works out to US$39 million.

This sum is subject to a post-closing working capital adjustment.

In addition, ApiFix shareholders will also get guaranteed milestone payments and earnout payments over the next four years. An earnout is a contractual provision whereby the seller of a business will receive additional payments based on the future performance of the business sold.

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The milestone payments of at least US$30 million in total are dependent on ApiFix completing 150 clinical procedures each year as well as on OrthoPediatrics' revenues from using ApiFix's system.

Back of the envelope calculations show that Trendlines could book revenue of US$7.3 million from its stake sale. Milestone and earnout payments could bring in another US$5.6 million.

Some of those gains may already be accounted for in Trendlines' books though.

Trendlines on Thursday said that its exit from ApiFix had contributed positively to its consolidated earnings per share and net assets per share for the financial year ended Dec 31, 2019.

The gain was recorded for fiscal 2019 as the transaction had been under advanced negotiations at the time, a Trendlines spokesman told BT, and ApiFix's was revalued based on the potential transaction.

Trendlines' net loss had narrowed significantly to US$474,000 last year, from the US$6.1 million net loss in 2018, according to its annual report.

ApiFix's technology has "strong intellectual property protection", including 46 issued patents and 25 patent applications worldwide, Trendlines said on Thursday.

As at 3.13pm on Thursday, Trendlines' shares were trading at 8.8 Singapore cents, up 1.5 cents or 20.5 per cent, after lifting a trading halt called in the morning.