Dr. Comfort, a rapidly growing Mequon firm that sells special shoes and inserts for diabetics, is being acquired by a California company for $254.6 million in cash.
The transaction, expected to close by late April, promises a big payday for a 9-year-old company started by a former shoe-store owner.
Waiting to buy Dr. Comfort is DJO Global Inc., a medical-device firm that makes and distributes such things as orthopedic braces, compression garments and vascular therapy systems.
Based near San Diego in Vista, Calif., DJO will continue Dr. Comfort's operations in Mequon, where the great majority of the firm's roughly 200 employees work, Dr. Comfort spokesman Greg Karian said.
Dr. Comfort posted sales last year of $71.8 million, up from $58.6 million in 2009.
The firm's majority owner is Rick Kanter, who started it in 2002 after selling a small chain of shoe stores, the Boot Corral. Merit Capital Partners, of Chicago, holds a minority stake.
Strictly based on revenue, DJO Global is paying a rich price for Dr. Comfort, said Stan Johnson, president of Milwaukee-area mergers-and-acquisitions advisory firm Anderson / Roethle Inc.
But other factors - possibly the prospects for growth in the diabetes-care market - clearly must be in play, he added.
"This has got to be a strategic investment with a capital 'S' on it, and this company is being purchased based on the future and not on the past," Johnson said.
Diabetes, which is linked to obesity, does appear to be an area that will command increasing attention as the baby boom generation ages.
A statement by DJO Wednesday said the federal government estimates that 25 million Americans are diabetic, and that the lifestyles of another 57 million put them at risk of developing the condition.
"The U.S. diabetic footwear supply market is estimated at $150-$200 million for 2010 and is largely in the early stages of development," the statement said.
Kanter, who was not available for an interview Wednesday, started Dr. Comfort after federal legislation about 10 years ago authorized Medicare to reimburse qualified diabetics for special shoes and inserts, Karian said.
According to a news release, Kanter will be leaving his role as Dr. Comfort CEO "to devote his full attentions to an unrelated start-up business."
Diabetes often impairs circulation, leading to loss of feeling in the feet. As a result, small irritations - things as simple as a shoe seam rubbing against a toe - can go unnoticed, cause infection and sometimes make amputation necessary.
Special footwear such as Dr. Comfort makes and sells is designed to protect feet from such problems.
The company's shoes are made in Asia, but employees fashion custom inserts in Mequon. The inserts are a key element, and a set of three, which lasts a year, can cost $160 to $240 at retail - more than the shoes themselves, Karian said.
He said Dr. Comfort is the largest diabetic-footwear company. Helping drive the firm's growth, he said, has been its emphasis on selling attractive shoes that people want to wear rather than stereotypical therapeutic footwear.
DJO lost about $52 million last year on sales of $966 million. The company was public until 2007, when it was purchased by the Blackstone Group.
In 2006, a former executive with Dr. Comfort accused the firm of selling inserts that didn't meet Medicare manufacturing specifications, but providing customers with information indicating the inserts were approved, according to documents filed at the time in federal court.
The Dr. Comfort-DJO purchase contract appears to refer obliquely to that situation. The contract specifies that before the deal closes, there must be a settlement agreement among Dr. Comfort, the former executive, the U.S. Department of Health and Human Services and the U.S. Attorney's Office. The contract says that at or before closing the company "shall have fully paid the settlement amount."
The purchase contract is included in a document DJO filed Wednesday with securities regulators.
Karian declined to comment on the matter.