Neuronetics, Inc. STIM recently announced that it has agreed to acquire all outstanding shares of Greenbrook TMS Inc., a magnetic neurostim company, in an all-stock transaction. The acquisition is likely to provide innovative care to patients suffering from mental health conditions in the United States.
Per management, merging Greenbrook's well-established practice operations and support capabilities with Neuronetics' cutting-edge NeuroStar platform, the combined company can enhance care at Greenbrook's current locations and at any healthcare provider that wants to offer NeuroStar to its patients.
The transaction is expected to close during the fourth quarter of 2024, subject to approval by both companies’ shareholders, court approval in respect of the plan of arrangement and other customary closing conditions.
Strategic Benefits of the Acquisition to Neuronetics
The acquisition of Greenbrook gives Neuronetics and its clients several strategic advantages by establishing a vertically integrated company that can supply transcranial magnetic stimulation (TMS) therapy on a large scale.
Neuronetics, by leveraging the significant scale and capabilities of the two businesses, is likely to drive increased awareness of its product NeuroStar TMS. Through marketing efforts under a single brand, Neuronetics expects to drive significant increases in awareness of NeuroStar amongst patients, caregivers, and providers. Owing to the acquisition, under centralized management, Neuronetics expects better operationalization of NeuroStar’s best practices across all Greenbrook sites nationwide.
As a result of the acquisition, Neuronetics is also likely to expand training opportunities on how to successfully incorporate med management and Spravato treatment alongside NeuroStar, as well as access to centralized services to improve its business operations, which includes the ability to benefit from regional and national payor contracts, the outsourcing of reimbursement billing and processing, better revenue cycle management, and a national call center.
Financial Benefits of the Acquisition to Neuronetics
Along with the strategic benefits, the acquisition is expected to create certain financial benefits for Neuronetics.
The acquisition is likely to increase revenue scale and provide a strong growth trajectory. Per the press release, the combined company's pro forma sales in fiscal 2023 would have been roughly $145 million, which would have practically doubled the scale of the stand-alone businesses. Furthermore, for fiscal 2025 and 2026, the merged business projects revenue growth in the mid-teens year over year.
By optimizing marketing expenditure and back-office operations, the merged business anticipates achieving annualized cost reductions of at least $15 million, with most of these savings occurring in fiscal 2025. Owing to strong expected revenue growth and achieving significant cost reductions, the combined company anticipates showcasing positive adjusted EBITDA and cash flow for the full fiscal year 2025, excluding one-time costs related to the transaction.
Also, because of the pre-transaction conversion of Greenbrook’s debt into common shares, in combination with the scale of the business post-acquisition, the consolidated company can leverage an improved balance sheet to execute its long-term growth strategy.
Industry Prospects
Per a report by Mordor Intelligence, the global anxiety disorders and depression treatment market size is valued at $21.5 billion in 2024 and is expected to reach more than $27.9 billion by 2029 at a growth rate of 5.3%.
It is anticipated that factors including the rising incidence of depression and anxiety disorders, rising awareness, and new product releases by major industry participants are expected to boost market growth.
Given the market potential for the treatment of depression, the acquisition of Greenbrook is likely to boost Neuronetics’ business and increase revenues.
Notable Developments
In May, Neuronetics announced the expanded commercial partnership with Transformations Care Network, a mental health care provider. This partnership marks a significant advancement in the field of mental health treatment, particularly for patients suffering from major depressive disorder (MDD) and treatment-resistant depression.
In April, Neuronetics announced the FDA 510(k) clearance of NeuroStar Advanced Therapy for usage as a supplement to treat MDD in adolescents aged between 15 and 21 years.
Price Performance
In the year-to-date period, STIM’s shares have declined 74.3% against the industry’s rise of 4.7%. The S&P 500 has gained 12.2% in the same time frame.
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Zacks Rank & Stocks to Consider
STIM carries a Zacks Rank #3 (Hold) at present.
Some better-ranked stocks in the broader medical space are Universal Health Service UHS, Quest Diagnostics DGX and ABM Industries ABM. While Universal Health Service sports a Zacks Rank #1 (Strong Buy), Quest Diagnostics and ABM Industries carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Universal Health Service has an estimated long-term growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 14.58%.
Universal Health Service has gained 41.1% compared with the industry's 34.8% rise so far this year.
Quest Diagnostics has an estimated long-term growth rate of 6.20%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.31%.
Quest Diagnostics shares have gained 3.7% so far this year compared with the industry’s 10.2% rise.
ABM Industries’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.34%.
ABM's shares have risen 24.1% so far this year compared with the industry’s 11.9% growth.
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