Note: This article is just my opinion. I have no dog in the fight and do not own either stock. This article will be updated as new information comes in. Send confidential notes to me at email@example.com and I will scrub your name.
Dec2021 – It is eerily quiet which usually means that execs are meeting offsite and due diligence is underway.
15Nov2021 – Globus makes public announcement that they are pursuing NuVasive.
2 analysts cast doubt
Two financial analysts predict Globus Medical’s potential deal to acquire NuVasive probably won’t happen, Seeking Alpha reported.
Piper Sandler analyst Matt O’Brien said the acquisition was unlikely to materialize because Globus Medical tends to pay “modest” prices for assets, according to a Nov. 15 report. He also noted that turnover in the sales personnel of the target company can make acquisitions in the spine space problematic.
“We do believe NuVasive is undervalued, the addition of Simplify would be welcome at Globus Medical and the management team at Globus would likely be able to pull a ton of costs of the combined entity; but, at the end of the day, we simply do not see it happening,” Mr. O’Brien said in the report.
Bank of America analyst Craig Bijou pointed to different corporate cultures at NuVasive and Globus Medical in a Nov. 16 report. Mr. Bijou said the NuVasive acquisition was unlikely because spine deals have a “tough” track record of integrations.
“We also do not think that adding a slower-growth, lower-margin business to gain scale would be a good use of Globus Medical’s nearly $1 billion in cash,” he said in the report.
Tiger’s early thoughts:
Situation – NuVasive has lost financial leverage. NuVasive had a terrible Q3 2021 with slowing revenues and negative earnings (a big earnings miss), so NuVasive has become a takeover target. NUVA lowered its FY21 revenue guidance. The decline in net sales in 3Q was a combination of Delta and staffing shortage impacts on elective procedures and limited orthopedics division (NSO) product availability. Here is a link to the NUVA leadership team.
Globus has tons of financial leverage. Their sales are surging and they have grown their market cap by 50% in the last 12 months. They are banking $50M in earnings per quarter.
Size Comparison – Globus Medical market cap is $7B and growing, and NuVasive market cap is $3B and flat.
Market Share – A Globus/NuVasive combination would result in ~20% of the WW spine market, and a solid #2 behind Medtronic. Today NuVasive is the 4th largest player in the $8B global spine market.
Product Overlap – NuVasive’s principal product offering is based on its Maximum Access Surgery (MAS) platform. JP Morgan’s analysts highlighted NuVasive’s differentiated technologies, such as its X360 anterior procedure solutions, as examples of how it may bring value to Globus. Globus would also enjoy complementary products such as the Simplify cervical disc, and MAGEC growing rods. Yet, the analysts also see significant overlap in the core implant portfolio as well as on the navigation and robotics sides.
Probability – This week, Tiger’s probability is 50/50 that the acquisition is completed in 2022. Although the acquisition is feasible from a financial viewpoint and regulatory viewpoint (HSR), the resulting combination would be a huge messy overlap of spine products, spine customers, and spine sales/distribution organizations.
Angst – At this point during the potential acquisition talks, many NUVA employees are unsettled and reaching out to recruiters.
Price – My guess is that an acceptable price for NUVA shareholders would be around $67/share. This is a 20% premium as of this writing and would take the NUVA market cap from $2.9B to 3.5B.
Reader comment – “The ambiguity associated with this ‘news release’ about GMED and NUVA is the real story. Makes me wonder if someone at Nuvasive got upset with Globus dragging their feet – either at the negotiating table or during due diligence – and then leaked the announcement. By doing this, it alerted other acquirers to the opportunity and, hopefully for Nuvasive, will get the process moving faster and/or drive the price up…..just a theory, though.”
Reader comment – “If Globus cannot get the NuVasive board to accept their offer, Globus could take a hostile stance and communicate the offer publicly (directly to the shareholders)”
Globus in takeover talks with NuVasive to boost spine portfolio: reports (MedTechDive)
- Globus Medical has approached NuVasive about a takeover that would bring together two challengers for the spine market, according to reports by Bloomberg and Reuters.
- NuVasive has struggled in the pandemic, with persistent headwinds ensuring its share price is yet to get close to the level it hit in February 2020. Globus, in contrast, recovered quickly from the crisis and by August was “considering other ways to grow the business through acquisitions.” NuVasive declined to comment on the rumored talks.
- Buying NuVasive in a cash-and-stock deal could strengthen Globus’ hand as it goes up against companies such as Johnson & Johnson, Medtronic and Zimmer Biomet. However, analysts at J.P. Morgan cautioned that earlier orthopaedic takeovers struggled to generate returns. Truist Securities and Piper Sandler analysts wrote the deal is unlikely.
The J.P.Morgan analysts see “significant challenges” to the potential acquisition of NuVasive because of the nature of the spine market. Globus will need to weigh whether the potential dis-synergies offset the chance to cut costs.
“It’s worth reiterating that ‘one + one’ rarely gets to ‘two’ on the top line, with significant portfolio overlap often coupled with overlapping customers and salesforces. The flip side of this does come on the cost-front, as eliminating this overlap can often lead to meaningful synergy capture even as the top line suffers in this highly rep-intensive business model,” the analysts wrote in a note to investors.
The analysts cited J&J’s takeover of Synthes in 2012, Zimmer’s buyouts of Biomet and LDR in 2015 and 2016, respectively, and Stryker’s 2018 acquisition of K2M as examples of how hard it is to make spine deals work. As the analysts see things, J&J “failed to stem share loss” while Zimmer is suffering “continued declines several years out still” and Stryker had a tough first year despite its integration expertise.
However, could a Globus-NuVasive merger buck the trend? J.P. Morgan analysts highlighted NuVasive’s differentiated technologies, such as its X360 anterior procedural solutions, as examples of how it may bring value to Globus. Yet, the analysts also see “significant overlap in the core implant portfolio as well as on the navigation and robotics sides.”
Globus cited its ExcelsiusGPS robot as the driver of the growth of its enabling technology unit, which posted a 124% jump in sales in the third quarter. NuVasive has its own Pulse robotic system.
While J&J has multiple robotic systems, the J.P.Morgan analysts have doubts about whether “it makes sense for Globus to support a platform that overlaps so much with its existing one.”
Truist analysts also see the deal as unlikely given that large integrations can be messy.
“While we see NuVasive possessing valuable assets, Globus has demonstrated it can successfully grow and gain share organically, and we think an integration of that size could distract from that growth formula,” the analysts wrote.
Investors appear to share some of the concerns. Shares in Globus fell 4% in the wake of the reports, shaving a little off the top of its $7 billion-plus market cap. NuVasive’s stock went in the opposite direction, rising 5% to push its market cap up above $3 billion.