Smith & Nephew recently completed their acquisition of ArthroCare, a medical device company focused on sports medicine.
This spring has been riddled with transaction announcements and completions in the orthopedic and spine device marketplace, and according to the experts the activity will likely continue through the end of the year. Here are five things to know about the acquisition:
1. Smith & Nephew paid around $1.5 billion for the company, with a per share purchase price of $48.25, paid in cash. The acquisition is expected to add approximately $85 million to annual trading profit in the third full year.
In the first quarter of 2014, Smith & Nephew reported trading profit at $229 million and revenue up 1 percent to $1 billion. United States revenue was down 2 percent, but the emerging and international markets were up 9 percent. The company also had multiple product launches in the first quarter, including the JOURNEY II Total Knee System.
2. The acquisition will accelerate Smith & Nephew's strategy to rebalance toward the company's higher growth segments. "Its technology and highly complementary products will significantly strengthen our portfolio, and we will use our global footprint to drive substantial new revenue growth," said Smith & Nephew CEO Olivier Bohuon in a company news release.
According to Smith & Nephew's first quarter financial report, the company is engaging in activities for a group restructure. These activities will be delivered over the next for years for an expected one-off cost of $150 million. The four main areas of action include:
• Aligning and improving corporate functions
• Driving procurement savings
• Simplifying operating model
• Optimizing facilities
3. ArthroCare's latest-generation radiofrequency technology strengthens Smith & Nephew's already strong mechanical blade portfolio. ArthroCare's shoulder anchor will also complement Smith & Nephew's orthopedics offerings, including knee repair solutions. The Smith & Nephew knee implant revenue was flat in the first quarter, below the market growth rate of 3 percent. These disappointing results came after a strong fourth quarter in 2013.
However, sports medicine delivered a 5 percent revenue growth.
4. Smith & Nephew will now have additional revenue opportunities from combined global footprint and channel presence. The company can cross-sell the combined portfolio and build upon shared capabilities as well as utilize Smith & Nephew's established global footprint to introduce ArthroCare products to new markets and customers.
The biggest growth opportunities include in the adjacent ear, nose and throat business. Strong combined new product pipeline and research and development will accelerate future innovation.
5. A Research and Markets report valued the orthopedics device market at $29.2 billion in 2012 and said it would grow at a compound annual growth rate of 4.9 percent from 2013 to 2019, reaching $41.2 billion in 2019. The report listed Smith & Nephew as one of the major market players, alongside Stryker, Medtronic and Zimmer — which just acquired Biomet.