from the July 2017 issue

Fortissimo buys medical equipment co Tuttnauer for $100m

The Israeli company is a global leader in sterilization systems for laboratories, hospitals, and medical clinics.

Fortissimo Capital has signed an agreement to acquire 100% of sterilization equipment company Tuttnauer for $100 million. Managed by Yuval Cohen, Fortissim is a private equity fund that has raised four funds totaling $1 billion to date.

Tuttnauer is a global leader in sterilization systems for laboratories, hospitals, and medical clinics. The company, whose turnover is in the tens of millions of dollars, markets its products in many countries, mainly through regular veteran distributors.

Founded by Zeev Tuttnauer in 1950, the company was managed for many years by his son, Joshua Tuttnauer, and in recent years by his grandson, Ran Tuttnauer, who was also responsible for developing the company's business in the US in the 1980s and 1990s, thereby making the Tuttnauer name a leading international brand.

The company held its IPO on the TASE in 1993, and was listed on it for 16 years. In its most recent annual financial statements, the company reported NIS 213 million in revenue, 95% of which came from exports, and a NIS 7.6 million profit.

Tuttnauer was hit hard by the 2009 economic crisis in the US and other countries that bought its equipment in dollars, which were worth less in shekels. In addition, hospitals suffering from the crisis were slower to replace their equipment. The Tuttnauer family made an offer to purchase for the public's shares in the company in 2009 at a value of NIS 166 million ($43 million at the exchange rate prevailing at the time), a 46% premium on the market price. Today, when the company is being sold, it is fully owned by the family (Ran Tuttnauer, his mother Chava, and his sisters, Lior and Shirley).

Following Joshua's death in 2011, his children began looking for a buyer for the company. There were a number of interesting offers, before Fortissimo agreed to pay the right price.

Tuttnauer is a good fit for the nature of Fortissimo's activity: it has a strong brand name in medical sterilization products (which can range from a small microwave sterilizer to a large sterilizer the size of an entire room divided into trays, which can sterilize the medical equipment of an entire hospital), including the use of steam. On the other hand, the company, the company has been very conservative for years, as befits a family-owned industrial business, after trying and failing to acquire a chain of electrical products in the US in 1993. The company subsequently adhered to its core sterilization business.

This sector has kept the company's growth rate steady at under 10% (except for the crisis years), because the need to sterilize medical equipment is continuously rising, but the company has not substantially expanded its line of products, made acquisitions, or thoroughly overhauled its technology.

Fortissimo is likely to add new geographic areas, new products, and product innovation to the company, perhaps also through acquisitions. The company's profit margin is liable to slip during this period (for the sake of a future increase), so it is better for it not to be a listed company, but also not a family-owned company.

Fortissimo is one of Israel's leading private funds. It invests in industrial companies, most of which sell products, not services, in many and diverse sectors. Its holdings range from large minority stakes to fully ownership. Among other things, the fund invested in Cadent Holdings (a dental companies sold to Align for $190 million), Kornit Digital(Nasdaq:KRNT) (in which Fortissimo had a $200 million exit from a $19 million investment, and still holds shares in the company worth $70 million), RadView, Telit Communications plc (AIM:TCM), Sodastream International Ltd. (Nasdaq: SODA; TASE: SODA), Phoenicia America-Israel (Flat Glass), Afimilk, Origene Seeds, Priority Software, MotoRad, and others. In addition to Cohen, Fortissimo's partners include Eli Blatt, Shmoulik Barashi, Marc Lesnick, Yochai Hacohen, and Yoav Hineman.

Reprinted from the Israel High-Tech & Investment Report July 2017

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