News | Calgary’s Circle Cardiovascular sells to Thoma Bravo for $213-million, taking IPO ‘off the table’ for years

Calgary’s Circle Cardiovascular sells to Thoma Bravo for $213-million, taking IPO ‘off the table’ for years

 March 30, 2022

One of the stars of Calgary’s technology sector, Circle Cardiovascular Imaging Inc., is being acquired by U.S. private equity giant Thoma Bravo LP for $213-million.

Circle briefly flirted last fall with the idea of going public before the selloff of technology stocks changed those plans. With a new deep-pocketed owner able to fund acquisitions and the prospect of sustained lower valuations for tech companies as interest rates climb, an initial public offering is “off the table for a few years,” chief executive officer Greg Ogrodnick said.

“We’re very happy we didn’t hit the public markets given what’s happened to technology companies that have listed on the TSX,” he said, as all but one of the 16 that went public last year on Canada’s senior exchange, the Toronto Stock Exchange, have traded below their issue price.

“Even though we would have had the cash in the bank to execute on our business plan with a successful IPO, the currency of our stock would certainly not have been there to help where we wanted to go.”

Thoma Bravo partner Carl Press wasn’t available for an interview, but told industry publication PE Hub that Circle will grow both by expanding sales of its existing products and by buying others in its space. His firm typically holds investments at least three years before selling or taking them public. “We have a long way to go before we think about an exit,” Mr. Press said.

Circle is one of a slew of fast-growing Calgary technology companies, including Benevity Inc., Neo Financial Technologies Inc., RS Energy Group, Solium Capital, Symend Inc., Reach Ltd. and Helcim Inc., that have drawn outside investors and created jobs and hope for local economic diversification during a prolonged downturn in the oil and gas sector in recent years.

The 190-person company makes software used in cardiovascular magnetic resonance imaging, or MRI, scanners to read, analyze and organize images consulted by cardiologists as they assess plans of action for patients.

Circle’s artificial intelligence-powered software has become the image software standard bearer for cardiologists globally: More than 1,500 hospitals in 50 countries use its software, including all of the world’s 10 highest-rated hospitals, led by the Mayo Clinic, Cleveland Clinic and Massachusetts General Hospital. Circle hopes to shift more imaging to MRI machines from other methodologies, such as nuclear imaging.

Its product is sold directly to hospitals that use it to replace the software that comes with their MRI machines, and is distributed with new machines made by giants General Electric and Siemens. Circle generates $30-million-plus in yearly sales, which are expanding at a rate of about 30 per cent.

Circle was co-founded in 2008 by Mr. Ogrodnick, a veteran health care entrepreneur, and Matthias Friedrich, a German cardiologist who had been recruited to start the cardiac MRI program at the University of Calgary. Their goal was to build cardiovascular imaging software that was superior to programs prepackaged on MRI scanners, and which would reduce the number of misdiagnoses that made one in five heart procedures unnecessary, redundant or ineffective.

By using AI trained on images from several heart centres, Circle automated parts of the process, organizing, reading and presenting images in a way that vastly reduced the time and effort needed by cardiologists to do their jobs. A 2019 study in the medical journal Circulation: Cardiovascular Imaging found Circle’s software not only matched the accuracy of human researchers but also did the job 186 times faster.

Mr. Ogrodnick declined to discuss the deal’s terms and Thoma Bravo did not disclose the value. However, the amounts were revealed in documents filed last week with the Court of Queen’s Bench of Alberta, which must approve a plan of arrangement for the deal, along with two-thirds of Circle shareholders.

The management proxy circular shows holders of Circle’s 9.5 million Class A preferred shares will get $7.22 a share, while holders of its 17.36 million common shares and 4.81 million options will get $6.49 and $6.55 apiece, respectively. Investors Kayne Anderson Capital and Yaletown Partners and a handful of executives, including Mr. Ogrodnick, will take $16.4-million worth of proceeds in shares of the recapitalized company.

The deal represents a solid return for Kayne and Yaletown, which collectively invested $16-million in 2018 and $10.6 million last September. They will get $74.1-million in cash plus shares valued at $11.2-million. Investors vote on the deal April 14.

“We’re pleased with the return our investors and our limited partners are getting” Yaletown partner Hans Knapp said. “I think it’s an excellent handoff point to a very experienced, seasoned investor.”

Thoma Bravo is one of the world’s largest private equity firms with more than US$91-billion in assets under management. The U.S. firm, with offices in Chicago, Miami and San Francisco, has also backed Canadian technology providers Cority Software Inc. and PDFTron Systems Inc.

AGC Partners and Osler, Hoskin & Harcourt advised Circle while Kirkland & Ellis and McMillan gave legal counsel to Thoma Bravo. Deutsche Bank is providing financing.

by: Sean Silcoff, Technology Reporter, The Globe and Mail