Alphatec Cites Material Adverse Effects In Ending $122M Deal

By Benjamin Horney
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Law360 (April 27, 2020, 11:07 AM EDT) -- Medical device maker Alphatec is terminating its nearly $122 million deal for orthopedic medical imaging and software business EOS Imaging, saying Monday that the coronavirus pandemic has resulted in a material adverse effect that makes closing the transaction unfeasible.

The decision was made late last week, and on Friday Alphatec Holdings Inc., or ATEC, notified EOS Imaging SA, according to statements from both companies. According to ATEC, the effects of the COVID-19 pandemic on the market means the deal is no longer doable, and therefore the material adverse effect clause, or MAE, has been triggered.

MAEs are a standard feature of merger agreements that, in narrowly defined situations, can provide an out for buyers. Though they are not escape hatches for all mergers and acquisitions gone bad, depending on the circumstances they are a lever that can be pulled by a buyer if market conditions have changed so drastically that a deal doesn't make sense anymore.

"This has been a difficult, disappointing decision," said Pat Miles, chairman and CEO of ATEC. "Both companies have worked so hard and so cooperatively, over many months, to bring this transaction together. On behalf of the entire ATEC family, I want to personally thank EOS for its commitment and hospitality throughout this process."

Miles said that ATEC continues to believe the interests of the two companies are aligned, and that some sort of strategic collaboration would be beneficial.

"I have shared my belief with EOS leadership, and look forward to the opportunity to continue to explore ways that our companies can work together to bring informed operative experiences to spine," Miles said.

In a separate press release, EOS said it "disagrees with ATEC's analysis and considers that while COVID-19 pandemic has a short-term impact on EOS, in line with our industry, this crisis does not impact the long-term perspective of the company." 

The company's board of directors is currently "assessing all available options," EOS said.

EOS makes full-body imaging and 3D modeling software that enables medical professionals to get precise measurements of anatomical angles and dimensions. The deal between the two was originally announced on Feb. 28.

Under the terms of the agreement, ATEC was set to pay a purchase price of up to $88 million, plus debt retirement of $33.9 million, giving the deal a total value of as much as $121.9 million.

Counsel information was not immediately available on Monday.

--Editing by Rebecca Flanagan.

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