Wright and Stryker embark on a joints venture

Stryker’s takeout of Wright Medical is, at $4.7bn, the biggest purchase of a significant orthopaedics player since Zimmer bought Biomet in 2015. Wright, like its peer Smith & Nephew, has often been talked up as a tempting target, and the 19% drop in its share price across 2019 has only made it more appealing. 

The two companies are active in different areas – Stryker has its robotic surgery expertise, for example, and Wright its biological bone fillers. But there is still significant overlap between the two groups, most obviously in joint replacement, and divestments might well be necessary for this deal to close. 

Stryker’s main strength is in the traditional ortho specialisms of hip and knee replacement, but it also has devices for use in foot and ankle procedures, and its trauma and extremities sales are forecast to come in at $1.7bn in 2019 according to EvaluateMedTech’s consensus data. This is an area of overlap with Wright, which has forecast sales of lower extremity devices of $342m for this year. 

Wright’s share of the total ankle replacement market is around 70%, for example, and if Stryker wants these leading products it might have to bid farewell to the ankle replacement devices it currently offers, with its Star ankle a prime candidate for divestment. The FTC's close scrutiny of several deals in the past few months virtually ensures that the antitrust watchdog will give this transaction a good look. 

Strong shoulders 

Wright’s real strength, though, is in upper extremities, including shoulder implants – an area in which Stryker currently does not play. Wright’s sales here are forecast to top $446m this year, according to EvaluateMedTech, and are growing fast, with its upper extremity sales forecast to reach $737m by 2024. 

Speaking on Wright’s second quarter 2019 earnings call, its chief executive, Bob Palmisano, said that the company “expects to be number one in shoulders worldwide by the end of this year, up from number three just a few short years ago.”

Stryker is definitely interested in growing its shoulder business. It has started investigating the use of its surgical robot, Mako, in shoulder procedures though this is believed to be a long-term project. This could gel nicely with Wright’s shoulder arthroplasty planning software, Blueprint. 

At $30.75 cash per share, the deal comes in at a premium of nearly 40% to Wright’s closing share price on Friday. This is not as steep as it looks at first; Wright’s stock lost 22% of its value after posting disappointing second quarter revenues in July. If Stryker can fix various issues, primarily around the distribution of products Wright obtained through its acquisition of Cartiva in August 2018, things could be back on track reasonably rapidly. 

Stryker, for its part, has been pursuing inorganic growth with great vim, and has done no fewer than 25 M&A deals in the past five years – four of them worth more than $1bn. 

This deal is the biggest of the lot. But if Stryker can make a good fist of integration it will surely only be a few years before the Michigan-based group cues up the next one.