Solta Medical Inc SLTM.O is exploring a sale due to falling profits from its medical equipment to remove fat and improve the appearance of a person's skin and pressure from activist investor Voce Capital Management LLC.
Shares of Solta, which makes products for procedures such as skin rejuvenation, skin tightening and body contouring, jumped 20 percent to $2.20 in extended trading after the company said it hired Piper Jaffray as adviser.
Solta's plans to pursue a sale come after its financial results missed analysts' estimates for at least four quarters in a row, hurt by rapidly deteriorating sales of its medical devices due to competition.
Rival Zeltiq Aesthetics Inc (ZLTQ.O), has been steadily grabbing market share from Solta's non-invasive fat-reduction device Liposonix with a competing system called CoolSculpting, which is designed to selectively reduce stubborn fat bulges.
CoolSculpting sales helped Zeltiq's total revenue rise 65 percent to about $30 million in the quarter ended September - a period when Solta's sales slipped about 4 percent, after the company was forced to lower prices of Liposonix.
"I certainly wish they had done it sooner," Voce Capital Managing Partner Daniel Plants said of Solta's plans to explore options.
Plants declined to comment on potential partners for Solta, though he has earlier said he was aware of "substantial strategic interest" in the company.
Roth Capital Markets analyst Chris Lewis said Solta's financial performance for the past few quarters would negatively affect its potential takeout valuation, but a company looking to enter the aesthetic devices space could be lured toward Solta's diverse product portfolio.
Lewis named Canada's Valeant Pharmaceuticals International Inc (VRX.TO) as a prospective buyer, saying that "it has been rumored that Valeant wants to get involved on the device side."
Valeant has aggressively pursued acquisitions in the last few years, and most recently sealed a deal to buy cosmetics products maker Obagi Medical Products Inc in April for about $344 million. The company continues to look for small, cash-based acquisitions, its chief executive officer told Reuters last month.
Voce Capital was also behind pushing Obagi toward a buyout.
The San Francisco-based investment firm, which said in May that it owned about 500,000 Solta shares, has repeatedly criticized Solta's quarterly results and also pointed toward growing consolidation in the aesthetic medical market, warning that Solta's "exit options" might be narrowing.
Cynosure Inc (CYNO.O), a maker of minimally invasive aesthetic treatments, agreed to buy Palomar Medical Technologies Inc in March to expand its portfolio of light-based devices used to treat scars and wrinkles.
The market for aesthetic devices fluctuated around 2008-2009 as patients put off discretionary spending amid an economic slump. However, demand has steadily grown and cosmetic surgical procedures increased more than 3 percent in the past year, with almost 1.7 million procedures in 2012, according to research by the American Society for Aesthetic Plastic Surgery.
Solta also unveiled on Monday a restructuring plan to cut annual costs by $12 million.
The company's cash balance stood at $7.7 million at the end of September, compared with $16.3 million at the end of June.
Solta reported $27 million in debt at the end of the quarter and said it agreed on terms with its lender for a $40 million financing, expected to be completed later this month.
The company's stock has slid nearly 34 percent since January, tracking a rapidly weakening financial performance.
Solta's third-quarter adjusted loss was 4 cents per share, compared with net income of 3 cents per share a year earlier.
Revenue fell 4.2 percent to $33.5 million, mainly due to lower average selling prices of the Liposonix system.
Analysts on average had expected a loss of 1 cent per share on revenue of $40.7 million, according to Thomson Reuters I/B/E/S.
(Reporting by Zeba Siddiqui in Bangalore; Editing by Joyjeet Das and Lisa Shumaker)