Symmetry reacts to ortho mergers with divestment

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The orthopaedics industry is in flux, and instruments manufacturer Symmetry Medical is responding to the changes by getting out entirely. Symmetry’s OEM Solutions unit supplies tools and implants to medtech companies and therefore faces losing customers as the ortho sector consolidates. The buyer is engineering firm Tecomet, which has agreed to pay $450m.

Symmetry will in fact cease to exist in its current form: its remaining business, centred on surgical instruments, will be spun out to its shareholders as a new public company called Symmetry Surgical. Shareholders were positive about the developments, sending the company’s stock up 9% on the Nasdaq yesterday.

The company’s reorganisation was prompted as much by the chance of future amalgamation in the orthopaedics sector and the transactions that have already occurred. The enormous deal forged by Zimmer and Biomet is likely to prompt even more mergers as companies seek the scale that will enable them to remain competitive (Zimmer and Biomet hook up for second orthopaedics megamerger, April 24, 2014). Stryker and Smith & Nephew, for example, are being watched very closely for any signs that they will follow the merger trend.

Volatile market

In 2013, Symmetry raked in $311m from its OEM Solutions division, which comprises instruments, implants and cases, but it obviously fears that a shrinking customer base could cause sales to fall. Perhaps this is why Tecomet picked up the unit for a relatively cheap 1.4x sales. The transaction is expected to close in the fourth quarter.

Symmetry’s only other unit, Symmetry Surgical, had revenue of $89.3m last year, so following the divestiture and spin-out, the soon-to-be-formed Symmetry Surgical will have less than a quarter of the turnover of the company in its current form. Current shareholders will receive one share of the new company for each four shares of Symmetry Medical stock.

Symmetry said that the new Symmetry Surgical would “no longer be impacted by the volatility” of the orthopaedics market. That volatility may not play itself out for some time to come.

OEM Solutions is headquartered in Warsaw, Indiana and employs 2,300 people. Warsaw has some claim to be the orthopaedics manufacturing capital of the world, or at least the US: Zimmer and Biomet are both based there, as is Johnson & Johnson’s ortho unit, DePuy. Not all OEM’s workers are based at the Warsaw site – it has 12 other facilities around the world – but the town is now losing two employers.

The current wave of consolidation of orthopaedics giants was always going to have profound effects on smaller companies in the industry. Symmetry will not be the last company pushed into a restructuring.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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