Wright Medical and Cremascoli Ortho: Crossing Paths

Wright's acquisition of Italy's Cremascoli Ortho SPA is probably best seen as opportunistic--the kind of deal that happens when a newly energized buyer meets a more eager seller.

Two months ago, when Warburg Pincus acquired Wright Medical Technology Inc. , executives at the investment firm argued that Wright didn't need to embark upon the kind of roll-up strategy that Warburg had in mind when it entered the urological device field with its acquisition of American Medical Systemsfrom Pfizer Inc. At the time, Elizabeth Weatherman, a principal at Warburg, told IN VIVO that Wright was "big enough on its own" and could easily "grow from its current position." Additional acquisitions were possible, she said, but not necessarily "part of our investment strategy."

Thus, Wright's acquisition of Italy's Cremascoli Ortho SPA is probably best seen as opportunistic—the kind of deal that happens when a newly energized buyer meets a more than eager seller. Still, the stories of Wright and Cremascoli have had interesting parallels. Both started the 1990s as promising newcomers trying to break out of a regional focus to succeed on a broader geographic scale, Wright in the US, Cremascoli in Europe. (Within Italy itself, Cremascoli had long been a market leader, but had done little to branch out.)

Both companies also ran into trouble trying to expand their reach. More importantly, however, management at both had come to the conclusion that in a consolidating orthopedic marketplace, small to mid-sized companies, no matter how successful they are, face an impossible path going forward. In a nutshell, we noted last June in a profile of Cremascoli (see "What's Next for Cremascoli Ortho,"IN VIVO, June 1999 [A#1999800130), the Italian company's senior managers had begun to feel that though they had put together a solid strategic plan and a strong product line, neither would be enough to sustain the company's turn-around, given the consolidation that has recently taken place in the European orthopedics marketplace. (Consolidation in Europe, which preceded US consolidation, held the additional dimension that much of it involved companies—strong in local markets—selling out to international companies, usually US-based.)

Cremascoli came to believe that consolidation is a difficult strategy for non-market leaders, because it's not a game that many would-be acquirers can play at the same time. It's not like activities where big and small companies alike can participate—such as coming up with great new products or putting together an efficient manufacturing operation—and where several of them can do so pretty much at the same time. Only a handful of companies can effectively pursue a consolidation or roll-up strategy at any given time before they begin to mutually crowd each other out of the market.

Before it was bought by Warburg Pincus, it's true that Wright Medical had other problems than the fact that the US market leaders were consolidating. But Wright's decision to sell was certainly also shaped by the fact that the market has changed, and by the fact that its former owners had lost confidence in its ability to go ahead as a stand-alone company. Cremascoli officials, too, had hoped at one time that they might lead a roll-up—of mid-sized European orthopedic companies—rather than be the object of one. In the end, however, the desire of each company's investors to find an eager buyer brought the parallel paths of Wright Medical and Cremascoli to an intersection.