Articles Posted in Valuation

A Boston startup company that makes technology used to improve medical testing for gastrointestinal disorders has sold itself to a Japanese buyer, the Boston Globe reported.

With venture capitalists becoming more active and the IPO market heating up — particularly in the medical and technology sectors — our Massachusetts general counsel attorneys expect to see more action when it comes to business sales, mergers and acquisitions through the remainder of the year.
The parties did not disclose the terms of the sale of Spirus Medical Inc., of West Bridgewater, to Olympus Corp. of Japan. Olympus specializes in consumer electronics and medical devices. Spirus Medical makes an endoscope that improves gastrointestinal testing. Several sources told The Globe the value of the deal could reach $60 million if Spirus meets a series of milestones and wins regulatory approval for the device.

That would make it among the largest venture-backed deals involving a medical technology company in Massachusetts this year. It also highlights a growing trend among tech and medical startups: Virtual companies that have a great idea but few employees; subcontracting and partnerships keep costs low and companies can sell for a profit before the product even makes it to marketplace.

Of primary concern in such arrangements is that the startup has outstanding legal advice. Unfortunately, solid legal advice is often another line item targeted for savings, when in reality such virtual companies need more legal advice to succeed — not less. Copyright and patent infringement is a concern as work is contracted to larger companies with more resources — so is the outright theft of trade secrets.

And when it comes time to sell there are a number of complexities. A sale may fall through because of systemic legal problems with the company’s founding or operations. And the potential buyer is typically at a significant advantage because of its size and access to high-quality legal representation.

In this case, Olympus is the global leader in endoscopes. It competes with two other Japanese corporations, Fujitsu Ltd. and Pentax Corp. in the sale of endoscopes to doctors around the world. The devices are used in a variety of medical procedures, including panendoscopies and colonoscopies. Spirus has fewer than 10 employees and has been backed in part by BioVentures Investors, a venture capital firm based in Wellesley.

Until Spirus, there had been little innovation in the space for decades — all three companies are selling essentially the same device to doctors and medical facilities. Spirus founders are developing a spiral sheath that allows for manual rotation through the GI tract. A powered version of the device is also under development. Thus far, clinical trials have shown the devices speed up testing and give doctors better visibility.

A clinical professor at Brown Medical School called the device a “significant game changer,” saying it would permit examination of the entire small bowel, something current devices do not permit.

The company is slated to move to an Olympus office in Southborough.
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Bloomberg reports a judge has declined to immediately dismiss the never-ending lawsuit filed against Facebook by the Winklevoss twins.

Made famous as the subject of the movie “The Social Newtwork,” it stands as a cautionary tale for those dealing with business formation in Massachusetts. Cameron and Tyler Winklevoss claim Facebook was an idea they brought to founder Mark Zuckerberg while the three were students at Harvard. Their lawsuit was settled in 2008 for $65 million but they are seeking to reopen the lawsuit on the grounds that Facebook engaged in fraud by not providing an accurate valuation of the company.
A Massachusetts business startup attorney should always be used to form a corporation or other business formation matters. Complying with state and federal law can be complex. Ensuring the integrity of your business from claims by founding partners or others is critical to an entity’s long-term survival. Particularly when investors or partners are involved, getting in writing the business arrangement — complete with the claims and responsibilities of each party — can save a lifetime of headaches down the road. Too often, early business ventures are sealed with a handshake. We understand money is often a concern. But getting it right beats getting it done cheap. And foregoing legal advice is usually a costly mistake.

Facebook hired former White House spokesperson Joe Lockhart this month as it prepares for an Initial Public Offering and life as a publicly traded company. That could happen as early as next year. Fortune reported this month that the company’s value is expected to be $100 to $165 billion when it begins public trading.

Existing shares of the privately-held company are closely guarded and trade on special secondary markets, if at all. Those trades place the current market value at $85 billion. Most recently, the company has been providing employees with stock grants, rather than stock options, in an effort to keep shares of the company off the market. However, Securities and Exchange Commission rules require any company with 500 or more shareholders to publicly disclose finances and comply with many other rules that govern public corporations. Facebook is expected to hit that threshold early next year, which most think will finally push it to become public.

Facebook v. ConnectU Inc. is an extreme example. Facebook and the Winklevoss twins have fought the lawsuit in federal courts in San Francisco and Boston. The Massachusetts court has agreed to put its case on hold until the California ruling. Most recently, the U.S. Court of Appeals in San Francisco agreed to halt litigation while the twins ask the U.S. Supreme Court to reverse the dismissal of their claims. Attorneys for Facebook have asked that litigation end in light of the 2008 settlement.

The Supreme Court petition “should not stand in the way of resolving the last meritless motion that will end this case once and for all,” Facebook said in a filing. An April decision by the appeals court called the 2008 settlement “quite favorable” to the twins and ruled that it barred them from filing future lawsuits against the social networking giant.
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