Stryker to Acquire K2M Group Holdings for $1.4 Billion to Bolster Underperforming Spine Business
VCBeat (WeChat ID: vcbeat)It has been reported that orthopedic device manufacturer Stryker announced on Thursday that it agreed to acquire all issued and outstanding common shares of K2M Group Holdings, Inc. (Nasdaq: KTWO), a manufacturer of minimally invasive spinal products, in an all-cash transaction at $27.50 per share, with a total equity value of approximately $1.4 billion.
For the 90 trading days ended August 29, 2018, the purchase price represented a 27% premium to K2M’s average closing share price. Upon completion of the proposed transaction, K2M will become a wholly-owned subsidiary of Stryker Corporation. Following the closing, Eric D. Major, Chairman, Chief Executive Officer and President of K2M, is expected to be appointed President of the Stryker Spine division.
K2M, a publicly traded company headquartered in Leesburg, Virginia, with annual sales of $300 million, is a leader in the complex spine market for 3D-printed implants. Just one year ago, K2M’s products received FDA clearance. Stryker will acquire all outstanding shares at $27.50 per share. Upon completion of the acquisition, K2M will be integrated into Stryker’s Spine division, expanding Stryker’s spinal therapy portfolio.
Analysts stated that Stryker’s acquisition of a smaller yet fast-growing public company in the complex spine market would help boost its own struggling spine business.
“K2M and Stryker are two leading manufacturers of 3D-printed implants in the spine field,” wrote Richard Newitter, an analyst at healthcare investment bank Leerink Partners, in a research report published by Stryker. “Through its MESA Rail technology platform, the company has also achieved success in the field of complex spinal (deformity) cases. Feedback from spine surgeons over the years has”K2MThe product has received high ratings.
Neutel pointed out that this acquisition should be beneficial for Stryker’s “spine business, which has been struggling in recent quarterly sales. But it hasn’t performed exceptionally well either.”
Stryker’s CEO, Kevin Lobo, hopes that this acquisition will strengthen the company’s connections with spine surgeons, patients, and other stakeholders, thereby expanding its customer base. “We believe K2M will significantly enhance our relationships with surgeons, patients, and employees in the spine and related neurotechnology markets,” Kevin Lobo stated at a press conference.
“Joining Stryker will mark a very exciting new chapter for our global team and our surgeon customers worldwide,” said Eric D. Major, Chairman, Chief Executive Officer, and President of K2M. “Stryker’s leadership in the orthopedics and neurosurgery markets, combined with K2M’s innovative culture and leadership in complex spine and minimally invasive solutions, presents a strong opportunity for Stryker to strengthen its leadership position in the $10 billion global spine market.”
Following the applicable regulatory waiting period, the K2M shareholder vote, and satisfaction of other closing conditions, the transaction is expected to close later this month.
Investment bank Leerink Partners recently responded on Newitter to the challenges of mergers in the spine market, stating: “Mergers in the spine market are typically associated with integration issues and sales force disruptions. However, in our view, K2M should be a relatively straightforward and easily digestible asset. We consider this a product-driven integration that adds several differentiated products in the markets for expandable interbody fusion devices and congenital deformities—two of the faster-growing segments within the spine sector. Furthermore, given Stryker’s stated intention to maintain the integrity of K2M’s existing sales team, this approach can minimize the risks associated with sales force integration.”
As early as 2007, Medtronic made a costly $4 billion acquisition in the spine market by introducing Kyphon and encountered years of challenges related to sales force integration.
In June of this year, Stryker entered into a merger agreement with its competitor, Boston Scientific. With Boston Scientific’s market valuation at approximately $44 billion, the completion of this transaction would create a medical device giant valued at over $110 billion. The merger between Stryker and Boston Scientific will combine Stryker’s expertise in orthopedics, neurotechnology, and spinal surgery with Boston Scientific’s businesses in cardiovascular and cardiac rhythm management, to develop implantable devices that monitor the heart and deliver electrical therapy to treat cardiac abnormalities.
Unlike its previous major acquisition, Stryker’s latest move aims to expand its Spine division. By acquiring a small but high-performing and fast-growing company, Stryker can broaden its business lines and extend its market reach, effectively absorbing all of K2M’s existing market resources.
About Stryker
Stryker Corporation, founded in 1941, is one of the world’s largest orthopedic and medical technology companies. Headquartered in Kalamazoo, Michigan, USA, it operates 14 production, R&D, and sales divisions worldwide and employs more than 16,000 people.
The product portfolio covers joint replacement, trauma, craniomaxillofacial surgery, spine, surgical equipment, neurosurgery, otolaryngology (ENT), interventional pain management, minimally invasive surgery, navigated surgery, smart operating rooms and network communications, biotechnology, medical beds, and emergency stretchers.
In 2016, orthopedic business revenue reached $5.176 billion (orthopedics + spine), ranking third globally in the orthopedic sector.
Due to its strong performance, Stryker has been recognized by the renowned U.S. magazines Fortune and BusinessWeek as a Fortune 500 company and one of the Top 50 Healthcare Companies in the United States.
Stryker enjoys an excellent clinical reputation in the Chinese market. In recent years, it has been highly active in the global capital markets, continuously acquiring medical device manufacturers to expand its product portfolio and market share, reflecting its positive outlook on the future of the global medical equipment market.
About K2M Group Holdings, Inc.
K2M Group Holdings, Inc. is a global leader in complex spine and minimally invasive solutions. Since its inception, K2M has designed, developed, and commercialized innovative complex spine and minimally invasive spinal technologies for spine surgeons to treat some of the most complex spinal pathologies. Leveraging these core competencies, K2M entered the Balance ACS market—a platform integrating products, services, and research—to help surgeons achieve three-dimensional spinal balance in the axial, coronal, and sagittal planes. The goal is to support comprehensive, continuous care to promote optimal patient outcomes. By combining the company’s technological expertise and leadership in 3D printing of spinal devices, the Balance ACS platform enhances K2M’s competitiveness in the global spinal surgery market.