Stryker buys Chinese Orthopedic company for $764 million
Stryker announced plans today to acquire Trauson Holdings, the leading trauma manufacturer in China, a move that will strengthen the company’s presence not only in China, but other emerging markets as well. Stryker will pay $764 million in cash for Trauson, or HK $7.50 ($0.97) per share, representing a 45% premium over the closing price of HK $5.16 ($0.67) on January 8, 2013. Net of cash, the deal is valued at $685 million, which is approximately 8.3x consensus 2012E revenues and 19.9x consensus 2012E EBITDA.
Just last week, Stryker CEO, Kevin Lobo, proclaimed that the company had a strong desire and ambition to expand its footprint in emerging marketplaces. In regards to the transaction, Mr. Lobo stated that, “The acquisition of a leading player in the Chinese trauma and spine market underscores our commitment to strengthening our presence globally. With its research and development expertise, manufacturing capabilities and strength of its distribution network, Trauson is a compelling opportunity for Stryker to drive growth in China and other emerging markets for years to come.”
This deal comes hot-on-the-heels of Medtronic’s acquisition of China Kanghui announced a few months ago, reinforcing the breadth of potential growth opportunities the Chinese orthopedic marketplace has to offer.
Trauson climbed as much as HK$2.18 to HK$7.34, the most since it started trading in June 2010. The stock changed hands at HK$7.23 as of 10:26 a.m. Hong Kong time, on trading volume that was more than 40 times the daily average over the past three months.
Orthopedic implant sales in China will almost double to $2.7 billion by 2015, vaulting the country past Japan as the biggest market after the U.S., according to Frost & Sullivan, a market research company. Trauson makes pelvic reconstruction plates and other products used in trauma surgery.
“In a highly fragmented Chinese market, Trauson is the largest distributor of trauma products and the No. 3 distributor in spine,” Michael Weinstein, an analyst at JPMorgan Chase & Co. in New York, wrote in a note to clients yesterday. “Trauson is highly profitable with gross margins in the high 60 percent range.”
Gross margin for the Changzhou, China-based company was 67 percent in the six months through June and averaged 71 percent since the first half of 2009, according to data compiled by Bloomberg.
“The acquisition of Trauson is a critical step toward broadening our presence in China and developing a value segment platform for the emerging markets through a well-established brand,” Stryker Chief Executive Officer Kevin A. Lobo said in a statement.
The two medical device makers have had a relationship under a manufacturing agreement for instrumentation sets since 2007, Kalamazoo, Michigan-based Stryker said.
Stryker rose 2 percent to $60.62 at the close yesterday in New York. The shares have gained 17 percent in the past year.
Trauson doubled in value last year after tumbling 52 percent in 2011. The stock resumed trading today after having been halted on Jan. 8.
Stryker is offering HK$7.50 per ordinary Trauson share in cash, 45 percent more than the last traded price of HK$5.16. Luna Group has agreed to tender 61.7 percent of Trauson’s shares, Stryker said.
The deal is expected to be neutral to Stryker’s 2013 diluted earnings per share, excluding one-time acquisition- related charges, and to add to earnings after that, Stryker said. The transaction is expected to close by the end of the second quarter this year.
Barclays Plc’s investment bank served as Stryker’s financial adviser and Sullivan & Cromwell served as the company’s legal counsel on the deal.