1. Stryker’s acquisition of K2M is consistent with the company’s recent M&A track record. With acquisitions of Entellus Medical, Novadaq, and VEXIM, it appears that Stryker is pursuing inorganic growth through tuck-in acquisitions that adds complementary products where Stryker already has a significant market presence.


  1. Stryker is currently one of the top 5 market leaders in spine, with K2M trailing closely behind. However, due to the commoditization of orthopedic implants as a whole, Stryker’s growth in the spine market is largely stagnant. While Stryker has been able to differentiate in the hip and knee segments through the disruptive acquisition of MAKO Surgical in 2013, the company has yet to bolster its aging spine portfolio.


  1. On the contrary, several leading competitors have recently acquired differentiated technologies in order to compete in the crowded spine market. Examples include the acquisitions of LDR’s artificial discs by Zimmer Biomet, and Vertera Spine’s porous PEEK technology by Nuvasive. K2M has also sought differentiation by collaborating with Brainlab to develop and market spinal implants compatible with Brainlab’s navigation systems.


  1. K2M’s annual revenue is over $250 million and growing at close to 10% YoY, which is significantly above the market growth rate. According to DRG Medtech’s Pricetrack data, K2M already has a strong position in the deformity market through its EVEREST spinal system, as well as a rapidly growing presence in the minimally invasive and degenerative markets through products such as the CASCADIA lateral interbody, CHESAPEAKE stand-alone interbody, and CAYMAN anterior plate systems.


  1. However, K2M has yet to be profitable, reporting around $40 million in losses annually over the last 5 years. Merger with Stryker will bring wider market access to K2M’s products and improve operational efficiencies that could accelerate K2M toward its break-even point.


  1. The spine market will remain rife with opportunities for M&As. Small, innovative companies are gaining market share as top competitors struggle. Differentiated technologies, such as Titan Spine’s nanoLock and Seaspine’s NanoMetalene surface-enhanced interbodies, will continue to be attractive acquisition targets.


  1. Perhaps the truly disruptive technology in spine can be found in surgical robotics, which is currently dominated by Mazor Robotics. With a market capitalization close to that of K2M, and revenue growth harkening back to the early days of Intuitive Surgical, Mazor Robotics continues to be an independent entity despite its close strategic partnership with Medtronic. One wonders when, if ever, will Mazor Robotics appear on the M&A headlines.


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