Seeking Alpha: Valeant Adds Solta Medical To Its Dermatology Franchise

While it's better to be right, experienced investors know better than to throw away a lucky break. My Alpha-Rich call to buy Solta Medical (SLTM) around $2.30 is not going to go down as one of my favorite picks. While I discussed at some length the risks that ongoing execution issues would keep Solta from reaching its potential, I thought management was close to turning the corner. As it turns out, management found still more corners and this was an exceedingly "meh" pick (down about 8%).

Then along came Valeant (VRX) to save the day.

Valeant and Solta Medical announced on Monday that they had reached an agreement whereby Valeant will acquire the company for $2.92 a share in cash, or a total deal value of $250 million. With this deal, Valeant adds dermatology and aesthetics assets that I believe are better than they appear, while Solta's board gives shareholders an exit strategy with some modicum of grace. Assuming investors who bought around $2.30 sell out at the stated price, they'll get an absolute return of almost 27% and an annualized return of close to 59% - not so bad for a story that was not really developing as I'd hoped.

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Valeant Adds Solta Medical To Its Dermatology Franchise.

Seeking Alpha: Solta Has The Chance To Rejuvenate Itself

Solta Medical (SLTM) is either going to make its investors a pretty respectable amount of money, or it's going to drive them most of the way to the asylum. For all of the things that should be so right about this business - a great high-margin disposables business, leverage to the best growth markets in aesthetics, solid IP - dicey execution, shareholder dilution, and turbulent end markets have made for a very rocky road so far.

Over the next three to five years, I expect the company's increased exposure to the body contouring/liposuction markets, as well as follow-on improvements to existing platforms, to build on improving end-markets to drive above-average revenue growth. I likewise look for a growing user base of the company's disposables/consumables and expanded direct sales efforts overseas to improve margins, such that the stock could rise 50% to 70% as the Street buys into the story again.

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Solta Has The Chance To Rejuvenate Itself

Investopedia: Can Body Sculpting Bulk Up Solta Medical?

Most investors are probably aware that the healthcare industry slowed significantly during the recession and has been very slow in coming back. Hospitals have pulled back on capital spending and procedure counts have dropped as would-be patients worry about inadequate insurance coverage, higher co-pays and/or the opportunity to take time off for recuperation.

There's another segment of the healthcare industry, though; one built around elective procedures that is generally not covered by health insurance. Aesthetics is a big part of this segment, and the market for skin tightening, rejuvenation and so on nearly collapsed in the recession. Procedure counts are starting to come back, though, and Solta Medical (Nasdaq:SLTM) is a risky name worth checking out by virtue of its differentiated business model and new LipoSonix body-sculpting line.

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http://stocks.investopedia.com/stock-analysis/2012/Can-Body-Sculpting-Bulk-Up-Solta-Medical-SLTM-ZLTQ-MRX-ELOS-PMTI0629.aspx