Collins Stewart Comments on Kinetic Concepts (KCI) Becoming Potential Private Equity Target

Collins Stewart is reiterating its Buy rating and $66 price target on shares of Kinetic Concepts (NYSE: KCI) as Bloomberg and WSJ state that the company is in talks to be acquired in a private equity deal.

The deal is estimated to be valued around $5 billion. One company who is a potential suitor for the acquisition is the Blackstone Group (NYSE: BX).

An analyst at Collins Stewart comments, "We believe that KCI should garner a peer group multiple under an acquisition scenario. In this case, its mid-cap peers trade on average at 9x EV/EBITDA on 2011 estimates. Applying this multiple to KCI yields an enterprise value of $6.3 billion, an equity market value of $5.7 billion (assuming year end 2011 net debt of $600 million), and a share price of $76. In addition, our sum-of-the-parts analysis would value KCI shares at $73."

Due to the company's moderately low revenue growth over the next couple of years, the firm does not believe that another MedTech company will try to acquire the company as MedTech companies tend to look for higher revenue growth acquisitions. Collins Stewart does believe that KCI's revenue growth will begin to increase as new products begin to launch and geographic expansion becomes more favorable.

For more ratings news on Kinetic Concepts click here and for the rating history of Kinetic Concepts click here.

Shares of Kinetic Concepts closed at $66.20 yesterday.

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