Smith & Nephew Targets Growth with $1.7 Billion ArthroCare Acquisition

After years of mixed fortunes and speculation about acquisition, Radiofrequency (RF) surgical device company ArthroCare Corporation has finally been snapped up in a deal that sees Smith & Nephew bolting on the company and in so doing strengthening its global sports medicine business.

Background

Smith & Nephew plc, has announced the execution of a definitive agreement to acquire ArthroCare Corp. for $48.25 per ArthroCare share in cash, a total consideration of approximately $1.7 billion and an enterprise value of $1.5 billion.

The strategic rationale for Smith & Nephew has always been pretty clear to observers of the two businesses. For a start they already engage in licensing agreements, notably for the rebadging of ArthroCare’s previous generation of RF controller. Beyond this, there is a significant complementarity between the ranges. Smith & Nephew are dominant players in the shaver market, while ArthroCare retains a leadership position with its core Coblation RF devices. Combining these offerings will present a powerful range to the sports surgery practitioner, one that led speculators to wonder whether Johnson and Johnson, with its DePuy Mitek franchise might get there first.

Interestingly Smith & Nephew points to ArthroCare’s strength in shoulder anchor devices, spearheaded by its Opus line, acquired in 2004. And indeed there’s little doubting that here again the combined portfolio looks like a strong one.

And of course, Smith & Nephew being the bigger entity and more of a global household name, it will be hoping it can use this global footprint to introduce ArthroCare’s products to new customers and markets.

With the two companies operating in fundamentally the same space, it’s expected that there will be potential for substantial cost reductions which, together with revenue synergies could add approximately $85 million to annual trading profit in the third full year, according to Smith & Nephew’s press release. Revenue synergies will include cross-selling in established markets, expanding into new and emerging markets and maximising efficiencies across the combined business.

Pending the satisfaction of customary conditions, Smith & Nephew anticipates closing the transaction in mid-2014. ArthroCare will be integrated swiftly to minimise disruption to customers.

Company comments

for Smith & Nephew

Olivier Bohuon, Chief Executive Officer of Smith & Nephew stated;  “This is a compelling opportunity to add ArthroCare’s technology and highly complementary products to further strengthen our sports medicine business. Together, we will be able to generate significant additional revenue from the more comprehensive portfolio, combined sales force and Smith & Nephew’s global footprint. With this transaction, we are again accelerating our strategy to rebalance Smith & Nephew towards higher growth.”

for ArthroCare 

David Fitzgerald, President and Chief Executive Officer of ArthroCare, commenting on the transaction said; “ArthroCare and Smith & Nephew know each other well from our licensing and supply arrangements, and this is a natural transaction for both companies. The Board believes that this transaction is in the best interest of our shareholders.”

Source: Smith & Nephew, plc

 

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