Smith & Nephew Purchases PLUS Orthopedics
BY JOHN CHOPACK, MARCH 12, 2007
Smith & Nephew announced today that it is acquiring Plus Orthopedics for $889 million, including the assumption of approximately $190 million in debt. Plus Orthopedics reported revenues of $300 million and EBIT of $36 million in 2006. This purchase price is 3.0x 2006 revenues and 25x 2006 EBIT. Eighty-six percent of Plus Orthopedics revenues are in Europe. The transaction is expected to close in 2-3 months pending regulatory approval.
In our opinion, this transaction was a scale transaction and likely a defensive against potential unsolicited offers for Smith & Nephew. After losing bidding battles for both Centerpulse and Biomet, Smith & Nephew was anxious to increase its market share. The transaction boosts Smith & Nephew to the number four position in global market share (~12%) behind Depuy, Zimmer and Stryker and ahead of Biomet.
Smith & Nephew believes that the acquisition will be earnings neutral this year and accretive to earnings in 2008. They have also stated that they believe they will benefit from $40 million in cost synergies and $45 million in revenue synergies by year. Interestingly, management also indicated that $1.1 billion in capital would be available for future acquisitions.
