Orthofix and SeaSpine to Combine in Merger

Orthofix (OFIX) and SeaSpine (SPNE) entered into a definitive agreement to combine in an all-stock merger of equals. The transaction is expected to close in the first quarter of 2023.

The combined organization, to be named prior to the transaction’s closing, creates the eighth-largest spine company, bolstered by a well-balanced portfolio spanning trauma, orthobiologics and bone growth therapies. The new company would have revenues of approximately $693 million as of the 12 months ended September 30, 2022.

The combination is expected to generate at least $40 million in annualized cost savings (not including stock-based compensation) within three years following the close of the transaction. Cost savings will arise primarily from reductions in redundant overhead and public company costs, as well as supply chain efficiencies.

Of interest, the combined company will have a complementary portfolio of specialized hardware and enabling technologies serving the pediatric orthopedic market, including specialized spine, limb deformity, limb reconstruction and software planning and imaging solutions.

2022 Performance

Orthofix faced several challenges through the first half of 2022, during which both its bone growth therapies and spinal implant businesses declined versus the previous year. In particular, the company’s M-6 artificial disc fought against increased competitive pressures.

SeaSpine, on the other hand, continued its run of well above-market growth in the first half of the year, with growth of nearly 20% compared to 1H21. The company’s rapid-fire pace of new products, FLASH™ Navigation System and improving distribution are set to drive more market share wins.

In separate releases, the companies announced preliminary 3Q22 financial results:

OFIX: Net sales of approximately $114 million, an increase of 1% on a reported basis and 5% on a constant currency basis versus the prior year

SPNE: Total revenue in an expected range from $66.7 to $67.2 million, reflecting 44% to 45% year-over-year growth

Looking Forward

Jon Serbousek will serve as Executive Chairman of the Board, and Keith Valentine will serve as President and Chief Executive Officer and member of the Board.

“This transaction significantly advances our mission to deliver innovative, quality-driven solutions that make us a partner of choice for surgeons in their work to improve patient mobility,” said Jon Serbousek, Orthofix President and Chief Executive Officer. “The combined company’s broad portfolio of technology, expanded commercial capabilities and ability to make greater investments in innovative solutions provide a clear roadmap for sustainable, top-tier growth and increased competitiveness across a broad spectrum of products and services. We look forward to capitalizing on this merger’s tremendous value creation opportunities.”

Keith Valentine, SeaSpine President and Chief Executive Officer, said, “This transaction brings together two complementary organizations to create an industry leader with the immediate financial strength to self-fund investments that deliver both growth and better patient outcomes. We are excited about the value we can create for the combined company’s shareholders, the new opportunities opened for employees and our ability to now provide surgeons and hospital partners a complete procedural solution using cutting-edge technology at every level.”

SeaSpine’s ascending fortunes, combined with Orthofix’s scale and access, could bring a great deal of synergy to the new company. However, we’re interested to see the cultural fit and integration between the organizations. Orthopedic integrations are notoriously tricky, especially those in the spine space.

Sources: Orthofix and SeaSpine; Investor Presentation