Medical device maker Stryker Corp said it will buy smaller rival K2M Group Holdings Inc for about $1.4 billion, adding K2M’s fast-growing spinal implant technology to its business.
Stryker’s offer of $27.50 per K2M share represents a premium of 26 percent to K2M Group’s Wednesday closing price. K2M shares rose 25 percent to $27.27 in early trading, while those of Stryker were marginally down at $170.03.
“If one were to have asked us where we would have expected Stryker’s next tuck-in deal to materialize, we would have pointed to Spine (division),” Leerink analyst Richard Newitter said.
Analysts said Stryker’s spine unit, which accounted for 6 percent of the company’s $3.32 billion second-quarter revenue, has been struggling of late.
K2M, which raked in nearly $300 million in 2017, is a relatively small player in the medical devices market dominated by companies such as Johnson and Johnson and Zimmer Biomet but has been rapidly capturing market share.
“This acquisition underscores our commitment to the spinal market, which is the largest segment of orthopedics with significant unmet needs,” Stryker Chief Executive Officer Kevin Lobo said. Upon closing of the deal, K2M Chief Executive Eric Major will serve as president of Stryker’s spine division and lead the combined business.
“This deal will help fill a notable gap of advanced spinal implant technology which Stryker has struggled to fill in recent years,” Baird analyst Jeff Johnson said.
Citigroup Global Markets Inc served as financial adviser and Skadden, Arps, Slate, Meagher & Flom LLP served as outside legal counsel to Stryker.
Piper Jaffray & Co was K2M’s financial adviser, while Simpson Thacher & Bartlett LLP was its legal adviser.
(Reporting by Aakash Jagadeesh Babu in Bengaluru; Editing by Arun Koyyur)