Smith & Nephew and Plus Orthopedics: A Deal Drawn to Scale
Smith & Nephew announced that it will buy privately-held Swiss company Plus Orthopedics. The acquisition gives Smith & Nephew a 12% global market share in the total reconstruction market, bumping it up to the global number-four position. S&N officials say the deal is about scale; the combination offers manufacturing leverage, including improved capacity utilization and improvements in the costs of goods. The merged companies also expect to leverage combined sales and marketing capabilities and look for an increase in sales resulting from putting S&N products through Plus sales channels-and vice versa. Some analysts have insisted that the Plus deal is about scale--but they're referring to the bulk that's required for Smith & Nephew to remain independent. S&N has been rumored to be a takeover candidate itself, in an industry in which the number of major players has been steadily shrinking due to consolidation.
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Even by the standards of today's medical device world, the acquisition last year of Plus Orthopedics Holdings by Smith & Nephew was impressive. Perhaps it was the deal's value: by any measure, one billion Swiss francs (or just under $900 million) simply has a nice ring to it. Perhaps it was the deal's European provenance: rarely in Europe do small start-ups grow to a size to justify such a valuation. But if the deal was anything but typical, the story behind Plus seems almost textbook.
Looking back on 2007 through the lens of acquisition activity reveals a lot about the current dynamics in the medtech industry. According to Windhover's Strategic Transactions Database, many of the 80 medical devices companies that were acquired last year came from the perennially hot orthopedics and cardiovascular markets. But in 2007, buyers found their targets in clinical areas that are starting to heat up: patient monitoring, in vitro diagnostics, minimally invasive surgery, and women's health. The acquirers themselves were a mixed bag--for a change, traditional buyers didn't make up the largest share. In fact, those billion dollar plus companies were as likely to divest as to acquire in 2007.
Once the very model of stability among orthopedics companies, Biomet went through a rocky period a while ago as its stock price tanked and its long time CEO left the company. To the rescue has come a group of private equity investors who will take the company private when the transaction closes later this year. Biomet officials insist the company's turnaround will be based on the same success factors that made the company successful in the past: product innovation, strong distributor relationships, and close customer ties. But the question is: what changes, if any, will Biomet's new owners bring?