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Bloomberg reported in 2021 that Globus Medical discussed a potential takeover offer with NuVasive. More than a year later, Globus Medical finally announced its intention to acquire NuVasive in an all-stock transaction to close in mid-2023.
Executives said the deal brings increased operational capacity, meaningful cross-selling opportunities and $170 million in cost savings by the end of year three. The combined company expects to maintain above-market growth of mid- to high-single digits.
Investors don’t seem enthused. Globus’ stock price declined 22% in the week since the deal announcement. Likewise, Wall Street analysts sounded skeptical that the combination of Globus Medical and NuVasive will defy the recent history of troubled integrations in spine.
This deal comes down to the one thing Globus executives said it wasn’t looking for: scale.
“Nothing in Spine Interests Us”
Globus Medical weathered the pandemic far better than its peers. Even with the lost year of 2020, Globus’ compound annual growth rate between 2016 and 2022 reached 10.3%, and the company quickly approached parity with NuVasive for total orthopedic sales. Exhibit 1 shows the total orthopedic sales for Globus Medical and NuVasive between 2016 and 2022.
Exhibit 1: Globus Medical and NuVasive Total Orthopedic Sales 2016-2022 ($Millions)
The combined company would have annual orthopedic sales in excess of $2.2 billion, with spinal hardware contributing 77% of all revenues.
Excellent topline growth and disciplined financial approach left Globus with plenty of options to move forward.
In 2021, Globus Medical CEO Dan Scavilla said the company’s business development activity leaned toward the joint replacement and trauma side of its business. Globus sought differentiated technology, not scale.
“We’re strong in spine, and there’s nothing in spine that’s of interest to us at the moment. We’re more focused on growing the other piece of our business, which is smaller. There’s nothing transformative in our sights right now. But we are looking at several modest-sized deals, as has been our history,” said Mr. Scavilla.
Even allowing for some competitive smoke and mirrors, Globus’ merger with NuVasive represents a sharp veer in strategy. Persistent macroeconomic disruption may have changed the math for the company. By late 2022, Globus Medical CFO Keith Pfeil indicated that supply chain and vertical integration were priorities for capital allocation.
Globus Medical Doubles Down on Spine
Acquiring NuVasive achieves some of Globus’ capital allocation goals to expand manufacturing capacity and increase service levels. The combined organization can leverage NuVasive’s global distribution center in Memphis, Tennessee, increase utilization of NuVasive’s West Carrollton, Ohio manufacturing plant and apply expertise gained from Globus’ 80% in-house manufacturing.
In addition to more capacity, the combined organization will have meaningful cross-selling opportunities across a comprehensive portfolio and global footprint. Mr. Scavilla said that he’s excited about using NuVasive implants with Globus’ enabling technology.
Globus would become the second-largest spine player when the deal is finalized. Some analysts raised anti-trust concerns, but regulatory issues seem unlikely given Medtronic’s substantive lead in the market and the host of competitors in spine. Exhibit 2 shows the top 10 largest players in spine after the pending mergers of Orthofix and SeaSpine, as well as Globus Medical and NuVasive.
Exhibit 2: Top 10 Largest Spine Companies by Revenue
Globus talked previously about investing in higher-growth markets like regenerative medicine, sports medicine and extremities. The decision to invest so much in a low-growth market like spine left many perplexed. But to be fair, Globus has a proven history of drastically outperforming the spine market. The deal for NuVasive doesn’t necessarily preclude Globus from making moves in those other segments, either.
There’s a perception that market share of more than 20% in spine approaches a point of diminishing returns and puts the company in a defensive posture. Medtronic is an example. It spent the last several years unsticking its growth in the spine market and getting back on offense. The combined Globus and NuVasive would have a 17.5% share of the global spine market.
A Clash of Cultures
Globus Medical must defy history to make good on the value proposition of its NuVasive purchase. The spine market is full of cautionary tales of troubled integrations that languish for years. DePuy Synthes’ spine woes go back decades, Zimmer Biomet cut away the anchor of its spine business last year, and Stryker is still trying to catch its footing in spine after buying K2M.
Globus and NuVasive approach the market in very different ways. Globus is an engineering company best known for its technology. NuVasive’s identity is about marketing and education. Mr. Scavilla pitched it as the best of both worlds and wondered why reps would go elsewhere.
But reps will inevitably go somewhere else. Delays and redundancy are likely. Globus Founder David Paul stressed the importance of intelligent surgery to the future of healthcare. But Globus still isn’t sure how NuVasive’s Pulse system fits into its enabling technology plans.
We also wonder how quickly NuVasive’s profitability can be improved to Globus-like numbers.
Globus Earned a Chance to Prove Us Wrong
Canaccord Genuity Analyst Kyle Rose said, “This deal brings incremental uncertainty around integration and operational challenges. We believe shares are appropriately priced and likely to remain range-bound until the dust settles on the M&A. We believe GMED will likely deliver on its long-term thesis here, but that comes at the expense of near-term share performance.”
We agree with Mr. Rose’s take. This deal doesn’t make perfect sense on the surface. There are plenty of stumbling blocks and chances for significant disruption. But Globus has earned the benefit of the doubt, given its consistently excellent performance in recent years.
Bloomberg reported in 2021 that Globus Medical discussed a potential takeover offer with NuVasive. More than a year later, Globus Medical finally announced its intention to acquire NuVasive in an all-stock transaction to close in mid-2023.
Executives said the deal brings increased operational capacity, meaningful cross-selling...
Bloomberg reported in 2021 that Globus Medical discussed a potential takeover offer with NuVasive. More than a year later, Globus Medical finally announced its intention to acquire NuVasive in an all-stock transaction to close in mid-2023.
Executives said the deal brings increased operational capacity, meaningful cross-selling opportunities and $170 million in cost savings by the end of year three. The combined company expects to maintain above-market growth of mid- to high-single digits.
Investors don’t seem enthused. Globus’ stock price declined 22% in the week since the deal announcement. Likewise, Wall Street analysts sounded skeptical that the combination of Globus Medical and NuVasive will defy the recent history of troubled integrations in spine.
This deal comes down to the one thing Globus executives said it wasn’t looking for: scale.
“Nothing in Spine Interests Us”
Globus Medical weathered the pandemic far better than its peers. Even with the lost year of 2020, Globus’ compound annual growth rate between 2016 and 2022 reached 10.3%, and the company quickly approached parity with NuVasive for total orthopedic sales. Exhibit 1 shows the total orthopedic sales for Globus Medical and NuVasive between 2016 and 2022.
Exhibit 1: Globus Medical and NuVasive Total Orthopedic Sales 2016-2022 ($Millions)
The combined company would have annual orthopedic sales in excess of $2.2 billion, with spinal hardware contributing 77% of all revenues.
Excellent topline growth and disciplined financial approach left Globus with plenty of options to move forward.
In 2021, Globus Medical CEO Dan Scavilla said the company’s business development activity leaned toward the joint replacement and trauma side of its business. Globus sought differentiated technology, not scale.
“We’re strong in spine, and there’s nothing in spine that’s of interest to us at the moment. We’re more focused on growing the other piece of our business, which is smaller. There’s nothing transformative in our sights right now. But we are looking at several modest-sized deals, as has been our history,” said Mr. Scavilla.
Even allowing for some competitive smoke and mirrors, Globus’ merger with NuVasive represents a sharp veer in strategy. Persistent macroeconomic disruption may have changed the math for the company. By late 2022, Globus Medical CFO Keith Pfeil indicated that supply chain and vertical integration were priorities for capital allocation.
Globus Medical Doubles Down on Spine
Acquiring NuVasive achieves some of Globus’ capital allocation goals to expand manufacturing capacity and increase service levels. The combined organization can leverage NuVasive’s global distribution center in Memphis, Tennessee, increase utilization of NuVasive’s West Carrollton, Ohio manufacturing plant and apply expertise gained from Globus’ 80% in-house manufacturing.
In addition to more capacity, the combined organization will have meaningful cross-selling opportunities across a comprehensive portfolio and global footprint. Mr. Scavilla said that he’s excited about using NuVasive implants with Globus’ enabling technology.
Globus would become the second-largest spine player when the deal is finalized. Some analysts raised anti-trust concerns, but regulatory issues seem unlikely given Medtronic’s substantive lead in the market and the host of competitors in spine. Exhibit 2 shows the top 10 largest players in spine after the pending mergers of Orthofix and SeaSpine, as well as Globus Medical and NuVasive.
Exhibit 2: Top 10 Largest Spine Companies by Revenue
Globus talked previously about investing in higher-growth markets like regenerative medicine, sports medicine and extremities. The decision to invest so much in a low-growth market like spine left many perplexed. But to be fair, Globus has a proven history of drastically outperforming the spine market. The deal for NuVasive doesn’t necessarily preclude Globus from making moves in those other segments, either.
There’s a perception that market share of more than 20% in spine approaches a point of diminishing returns and puts the company in a defensive posture. Medtronic is an example. It spent the last several years unsticking its growth in the spine market and getting back on offense. The combined Globus and NuVasive would have a 17.5% share of the global spine market.
A Clash of Cultures
Globus Medical must defy history to make good on the value proposition of its NuVasive purchase. The spine market is full of cautionary tales of troubled integrations that languish for years. DePuy Synthes’ spine woes go back decades, Zimmer Biomet cut away the anchor of its spine business last year, and Stryker is still trying to catch its footing in spine after buying K2M.
Globus and NuVasive approach the market in very different ways. Globus is an engineering company best known for its technology. NuVasive’s identity is about marketing and education. Mr. Scavilla pitched it as the best of both worlds and wondered why reps would go elsewhere.
But reps will inevitably go somewhere else. Delays and redundancy are likely. Globus Founder David Paul stressed the importance of intelligent surgery to the future of healthcare. But Globus still isn’t sure how NuVasive’s Pulse system fits into its enabling technology plans.
We also wonder how quickly NuVasive’s profitability can be improved to Globus-like numbers.
Globus Earned a Chance to Prove Us Wrong
Canaccord Genuity Analyst Kyle Rose said, “This deal brings incremental uncertainty around integration and operational challenges. We believe shares are appropriately priced and likely to remain range-bound until the dust settles on the M&A. We believe GMED will likely deliver on its long-term thesis here, but that comes at the expense of near-term share performance.”
We agree with Mr. Rose’s take. This deal doesn’t make perfect sense on the surface. There are plenty of stumbling blocks and chances for significant disruption. But Globus has earned the benefit of the doubt, given its consistently excellent performance in recent years.
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ME
Mike Evers is a Senior Market Analyst and writer with over 15 years of experience in the medical industry, spanning cardiac rhythm management, ER coding and billing, and orthopedics. He joined ORTHOWORLD in 2018, where he provides market analysis and editorial coverage.
