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Stock Strategist

In a Tough IPO Market, a Marriage of Convenience

Firms are getting creative in the midst of suddenly dormant public markets.

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With the IPO market still in a deep freeze, we thought it would be interesting to revisit a rather unique deal that closed last week involving  Cardiovascular Systems (CSII) and Replidyne. When the two companies announced back in November 2008 they were merging, we found it to be somewhat of an oddity because these two firms have little in common. Replidyne focused its efforts on anti-infective drugs, while Cardiovascular Systems, which had filed to go public in early 2008, had developed a novel system to fight peripheral arterial disease, which is the buildup of plaque in vessel walls that can severally restrict blood circulation. With no obvious up-front synergies apparent to us, we deemed it to be a desperation move; a firm with a potentially viable product but no cash merges with another company with ample liquidity but lacking a product as a result of multiple failures. At the same time, this deal was a creative alternative, a work-around to the suddenly dormant public markets. So the question remains: Does a deal of this kind make sense?

When we established coverage on Cardiovascular Systems back in August 2008 as part of our IPO service, we deemed it an exciting growth story with a chance for success, albeit one facing several hurdles. The company's Diamondback 360 system is designed to attack the buildup of plaque and other fatty deposits by sanding it down into smaller particles that would then be removed by the bloodstream. We believe the system to be quite innovative and that it could become a viable alternative to current treatment methods such as stents and balloons.

Bill Buhr does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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