Hologic Inc said on Tuesday it would acquire medical aesthetics company Cynosure Inc for $1.65 billion as it looks to capitalize on an increase in medical procedures that are not traditionally reimbursed.
The medical aesthetics market is growing at a rapid pace as the American population ages and more effective non-surgical products become widely available, leading to a spurt in dealmaking in the sector.
Cynosure - which makes products used in non-invasive body contouring, hair removal, skin revitalization and women's health - has generated double-digit revenue growth for seven straight years.
Much of aesthetics is not subject to reimbursement risks, making it less cyclical, William Blair analyst Margaret Kaczor told Reuters.
"Larger acquirers can access a fast growing, profitable market that is just in the first quarter of the game."
Botox maker Allergan Plc agreed to buy Cynosure's rival Zeltiq Aesthetics Inc for about $2.48 billion on Monday.
The medical aesthetics market exceeds $2 billion globally and is expected to grow at a low-double-digit rate over the next several years, Hologic said.
Markets for aesthetics products including body contouring have proven to be both sustainable and still highly under-penetrated, Kaczor added.
Shares of Cynosure were up about 28 percent at $65.90 in morning trading, slightly below Hologic's offer of $66 per share. Hologic's shares were down about 3.6 percent at $38.57.
The purchase price, a larger-than-expected deal and a market that is economy sensitive may not make the deal popular among Hologic investors, BTIG analyst Sean Lavin said.
"We are lukewarm on this acquisition," Lavin said, adding that Hologic noted there was another bidder so "this may have been a now or never situation".
The transaction has an enterprise value of $1.44 billion and will be fully funded with cash on hand, Hologic said.
Hologic - a maker of diagnostic products, medical imaging systems and surgical products - said the deal will immediately add about 3 cents-5 cents per share to its adjusted earnings for the balance of fiscal 2017. Cynosure's 2016 revenue was $433.5 million.
Shares of Syneron Medical Ltd, which also offers products for body contouring, hair and tattoo removal as well as facial treatments, were up 3 percent.
Morgan Stanley & Co LLC is Hologic's financial adviser, while Wachtell, Lipton, Rosen & Katz is its legal adviser.
Leerink Partners LLC is financial adviser to Cynosure, while Wilmer Cutler Pickering Hale and Dorr LLP is its legal adviser.
(Reporting by Natalie Grover and Divya Grover in Bengaluru; additional reporting by Ankur Banerjee; Editing by Anil D'Silva)