On November 4, 2019, Stryker announced that it had reached an agreement to acquire Wright Medical for $4.7B. This deal, which is to be finalized in the second half of 2020, represents a substantial development in the orthopedics space, but is largely in line with Stryker’s recent M&A track record, which includes acquisitions of K2M, Entellus Medical, Novadaq, VEXIM, and MAKO Surgical.
In recent years, there was much speculation regarding the possibility of Stryker acquiring Smith & Nephew; from a strategic point of view, Wright Medical is a much more complementary fit for Stryker’s portfolio. Smith & Nephew is strong in the large-joint, trauma, and sports medicine device spaces, where Stryker already has a significant presence and formidable portfolio. Therefore, this acquisition can be viewed as a strategic method of closing the gaps in Stryker’s small-joint replacement portfolio and acquiring some niche trauma products.
For Wright Medical, this is likely the most opportune time for an acquisition; the company had recently sized down its portfolio in response to struggling performance, allowing it to focus its efforts on segments where the major 4 orthopedic companies displayed a number of weaknesses. Since then, the company has been experiencing strong double-digit growth, which has—in addition to positioning the company as a lucrative strategic acquisition target—supported its valuation considerably.
Here are 5 major takeaways about the potential ramifications of this news:
- With this acquisition, Stryker will become the largest player in the global small-joint reconstructive implant space—worth over $1.5B in 2018 and anticipated to grow to more than $2.8B by 2027—surpassing primary competitor Zimmer Biomet. This is due primarily to Wright Medical’s leading position in the ankle space, its close second position (behind Zimmer Biomet) in the shoulder space, and its competitive standing in the elbow market.
- Stryker’s main product in the small-joint space, where it is the second-leading player, is the STAR Ankle. Because this acquisition is expected to enhance Stryker’s competitive position significantly, it is likely that anti-trust regulators will condition the acquisition on the divestment of a few brands; a prime candidate for divestment would be the STAR Ankle.
- Within the overall US joint replacement space, this acquisition will enable Stryker to narrow the gap with Zimmer Biomet and increase its lead over DePuy Synthes.
- In the global trauma device market, this acquisition allows Stryker to extend its lead over Zimmer Biomet considerably, and also narrows the gap with DePuy Synthes to some degree, though the latter will ultimately retain its substantial lead. Within certain subsegments in the US, such as the foot and ankle space—a currently roughly $1.7B market that is gaining interest among competitors—Wright Medical and Stryker are the second and third leading players; this acquisition will thereby allow the latter to overtake DePuy Synthes to become the new market leader; as a result, some form of divesture would be likely in this space as well.
- Given that Wright Medical does not have a substantial presence in the Asia Pacific and Latin American markets, this acquisition will not have a notable impact in those geographies, but will likely support Stryker’s position in the long run.
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