Analysts downgrade Restoration Robotics after merger pact


Analysts for William Blair and Roth Capital Partners downgraded Restoration Robotics (NASDAQ:HAIR) after the company said it is merging with closely-held Venus Concept. The stock was quoted at 81 cents, down 9 cents, at mid-day on March 18.

Under the accord, Venus Concept shareholders will own about 85% of the combined entity. “We lack an opinion on Venus Concept [which] should be the majority contributor to the new entity,” writes analyst Scott Henry of Roth. “Our $1 price target should be considered a placeholder.”

Mr. Henry said that at first glance, he believes the deal makes a lot of sense. “Restoration has a novel and innovative robot to automate hair replacement (we believe that it could become standard of care for the industry),” he added. “However, the company clearly [has] struggled with the scale and the financial resources to execute its business model.”

William Blair analyst Margaret Kaczor downgraded Restoration to “market perform,” noting that the merger marks a large asset profile change as hair restoration is only a small portion of Venus Concept’s current business.

“We view the merger announcement as a positive resolution for Restoration Robotics as it gives the company much-needed capital, improves its breadth of coverage, diversifies its revenue base, and adds a direct distribution network outside the U.S, which should help gross margin,” she added.

However, Ms. Kaczor said Restoration would be pivoting to a business model less focused on hair restoration, with a potentially different strategy for the hair franchise.

Stephen Kilmer