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Wright Medical’s divestiture of its large joint portfolio to Corin Orthopaedics officially turns Wright into the extremities company that it set out to become years ago, and leads to the question: What’s next in their M&A strategy?
In early July, U.K.-based Corin Orthopaedics made a binding offer to acquire Wright’s large joints business (Tornier hip and knee) for €29.7 million in cash (~US $33.0 million), yielding net after-tax proceeds to Wright of ~$20.0 million. The portfolio includes the entire legacy Tornier large joints business that is sold primarily in France and other European countries, including Dynacup® and Meije Duo® hips and HLS KneeTec® and HLS Noetos® knees.
ORTHOWORLD estimates placed 2015 sales of the knee portfolio at $28.2 million and the hip portfolio at $12.7 million, comprising ~6% of Wright’s $656.4 million worldwide sales.
The divestiture, which is expected to close by early 4Q16, is far from a surprise. It frees the company to concentrate fully on biologics and extremities—a direction attempted in early 2014 with its sell-off of OrthoRecon to MicroPort Orthopedics. If anything, the recent move is a case study on dedication to strategy.
In 2013, ORTHOWORLD interviewed Lance Berry, who remains Wright’s Senior Vice President and Chief Financial Officer. He spoke of the company’s focus on business development activities that would support top- line growth, specifically the fast-growing foot/ankle and biologics markets.
Ted Davis, former President of Wright’s OrthoRecon division, echoed Berry’s points, saying, “We developed a product strategy and a portfolio strategy. By having that focus and knowing where you want to hunt, you can carve out the distracting areas and quickly move on. If you’re focused and have a strategy, it’s a straightforward process and everybody on the team builds that knowledge base. That makes a big difference. Some companies just wait for opportunities to come to them. It’s very difficult then to know when to say no. We know very clearly when to say no to opportunities.”
Similarly, the company has known when to say yes.
The company’s earnest expansion into lower extremity started in 2007. Since our 2013 conversations with Berry and Davis, Wright has become third in the list of companies closing the most acquisitions and divestitures—seven in total—behind Smith & Nephew and Stryker, according to ORTHOWORLD’s reporting.
Finalization of the large joint sale to Corin, which has a longstanding focus on the large joint market in Europe will bump Wright’s M&A to eight transactions.
Analysts believe that the divestiture is a positive move for Wright, adding little disruption as it continues its focus on the Tornier integration and rollout of products like AUGMENT and the SIMPLICITI shoulder. Also, while we rarely cite EBITDA in these pages, it remains an important financial indicator. Analysts are encouraged by Wright’s expectancy to maintain its 2016 EBITDA guidance, even though the large joint portfolio was expected to generate $5 million to $6 million in EBITDA for 2016. Wright has updated its overall 2016 sales guidance to $668 million to $678 million, down by $37 million from
prior guidance.
With the divestiture soon to close, what might be Wright’s next M&A move? Prior to its merge with Tornier, Wright itself was rumored to be a prime acquisition target. As it finalizes its agreements with Tornier and Corin, the company has said little about future activity. But market trends show there are possible scenarios for future acquisitions.
Here’s a little background. Of the 15 companies with annual sales above $300 million per ORTHOWORLD estimates, Wright—number ten on the list—was the fourth-fastest growing, +4.6% in 2015 vs. 2014. It recently posted 1Q16 growth at +11.7% vs. 1Q15. While Wright’s strong growth is important, its unique position as the sole pure-play extremities company in the top 15 is key.
The extremities market is expected to grow in the 7% to 8% range through 2020. Our estimates, based upon 2014 numbers, placed Wright at fourth for the extremities segment with 9% of the market, behind DePuy Synthes, Stryker and Zimmer Biomet.
Wright’s position in high-growth markets will allow the company to continue its climb among the ranks of the top ten orthopaedic companies by capitalizing on its robust organic sales, and perhaps even purchasing some of the dozens of startups in the space. In observing Wright’s current portfolio, prime targets would be technologies that could boost its low-revenue segment of arthroscopy/soft tissue, expand beyond its basic plating systems in wrist or add untapped processes, like additive manufacturing.
The extremities market, due to its less-mature high revenue growth, is predicted to be a bright spot for acquisitions, at least through the decade. Most notable to this point was the Wright/Tornier merger, followed by Stryker’s purchase of Small Bone Innovations in 2014 and DePuy Synthes’ acquisition of BioMedical Enterprises in the second quarter of this year.
The Stryker and DePuy Synthes transactions assisted in filling holes in their extremities portfolios. Of the top five orthopaedic players, Smith & Nephew and Medtronic are the only two companies that do not offer a product line that fully competes with that of the combined Wright and Tornier. The short list of potential purchasers could limit the likelihood of a bid for Wright in the near term.
Today’s environment leaves few companies as untouchable acquisition targets, though the majority of recent acquisitions have focused on smaller niche players—whether in extremities, biologics, spine or computer-assisted technology. Just as Wright has shown dedication to its strategy, the largest orthopaedic players have shown their desire to build more comprehensive and diverse portfolios, and they’re starting with the more attractive markets.
Carolyn LaWell is ORTHOWORLD’s Chief Content Officer. She can be reached by email.
Wright Medical’s divestiture of its large joint portfolio to Corin Orthopaedics officially turns Wright into the extremities company that it set out to become years ago, and leads to the question: What’s next in their M&A strategy?
In early July, U.K.-based Corin Orthopaedics made a binding offer to acquire Wright’s large joints...
Wright Medical’s divestiture of its large joint portfolio to Corin Orthopaedics officially turns Wright into the extremities company that it set out to become years ago, and leads to the question: What’s next in their M&A strategy?
In early July, U.K.-based Corin Orthopaedics made a binding offer to acquire Wright’s large joints business (Tornier hip and knee) for €29.7 million in cash (~US $33.0 million), yielding net after-tax proceeds to Wright of ~$20.0 million. The portfolio includes the entire legacy Tornier large joints business that is sold primarily in France and other European countries, including Dynacup® and Meije Duo® hips and HLS KneeTec® and HLS Noetos® knees.
ORTHOWORLD estimates placed 2015 sales of the knee portfolio at $28.2 million and the hip portfolio at $12.7 million, comprising ~6% of Wright’s $656.4 million worldwide sales.
The divestiture, which is expected to close by early 4Q16, is far from a surprise. It frees the company to concentrate fully on biologics and extremities—a direction attempted in early 2014 with its sell-off of OrthoRecon to MicroPort Orthopedics. If anything, the recent move is a case study on dedication to strategy.
In 2013, ORTHOWORLD interviewed Lance Berry, who remains Wright’s Senior Vice President and Chief Financial Officer. He spoke of the company’s focus on business development activities that would support top- line growth, specifically the fast-growing foot/ankle and biologics markets.
Ted Davis, former President of Wright’s OrthoRecon division, echoed Berry’s points, saying, “We developed a product strategy and a portfolio strategy. By having that focus and knowing where you want to hunt, you can carve out the distracting areas and quickly move on. If you’re focused and have a strategy, it’s a straightforward process and everybody on the team builds that knowledge base. That makes a big difference. Some companies just wait for opportunities to come to them. It’s very difficult then to know when to say no. We know very clearly when to say no to opportunities.”
Similarly, the company has known when to say yes.
The company’s earnest expansion into lower extremity started in 2007. Since our 2013 conversations with Berry and Davis, Wright has become third in the list of companies closing the most acquisitions and divestitures—seven in total—behind Smith & Nephew and Stryker, according to ORTHOWORLD’s reporting.
Finalization of the large joint sale to Corin, which has a longstanding focus on the large joint market in Europe will bump Wright’s M&A to eight transactions.
Analysts believe that the divestiture is a positive move for Wright, adding little disruption as it continues its focus on the Tornier integration and rollout of products like AUGMENT and the SIMPLICITI shoulder. Also, while we rarely cite EBITDA in these pages, it remains an important financial indicator. Analysts are encouraged by Wright’s expectancy to maintain its 2016 EBITDA guidance, even though the large joint portfolio was expected to generate $5 million to $6 million in EBITDA for 2016. Wright has updated its overall 2016 sales guidance to $668 million to $678 million, down by $37 million from
prior guidance.
With the divestiture soon to close, what might be Wright’s next M&A move? Prior to its merge with Tornier, Wright itself was rumored to be a prime acquisition target. As it finalizes its agreements with Tornier and Corin, the company has said little about future activity. But market trends show there are possible scenarios for future acquisitions.
Here’s a little background. Of the 15 companies with annual sales above $300 million per ORTHOWORLD estimates, Wright—number ten on the list—was the fourth-fastest growing, +4.6% in 2015 vs. 2014. It recently posted 1Q16 growth at +11.7% vs. 1Q15. While Wright’s strong growth is important, its unique position as the sole pure-play extremities company in the top 15 is key.
The extremities market is expected to grow in the 7% to 8% range through 2020. Our estimates, based upon 2014 numbers, placed Wright at fourth for the extremities segment with 9% of the market, behind DePuy Synthes, Stryker and Zimmer Biomet.
Wright’s position in high-growth markets will allow the company to continue its climb among the ranks of the top ten orthopaedic companies by capitalizing on its robust organic sales, and perhaps even purchasing some of the dozens of startups in the space. In observing Wright’s current portfolio, prime targets would be technologies that could boost its low-revenue segment of arthroscopy/soft tissue, expand beyond its basic plating systems in wrist or add untapped processes, like additive manufacturing.
The extremities market, due to its less-mature high revenue growth, is predicted to be a bright spot for acquisitions, at least through the decade. Most notable to this point was the Wright/Tornier merger, followed by Stryker’s purchase of Small Bone Innovations in 2014 and DePuy Synthes’ acquisition of BioMedical Enterprises in the second quarter of this year.
The Stryker and DePuy Synthes transactions assisted in filling holes in their extremities portfolios. Of the top five orthopaedic players, Smith & Nephew and Medtronic are the only two companies that do not offer a product line that fully competes with that of the combined Wright and Tornier. The short list of potential purchasers could limit the likelihood of a bid for Wright in the near term.
Today’s environment leaves few companies as untouchable acquisition targets, though the majority of recent acquisitions have focused on smaller niche players—whether in extremities, biologics, spine or computer-assisted technology. Just as Wright has shown dedication to its strategy, the largest orthopaedic players have shown their desire to build more comprehensive and diverse portfolios, and they’re starting with the more attractive markets.
Carolyn LaWell is ORTHOWORLD’s Chief Content Officer. She can be reached by email.
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Carolyn LaWell is ORTHOWORLD's Chief Content Officer. She joined ORTHOWORLD in 2012 to oversee its editorial and industry education. She previously served in editor roles at B2B magazines and newspapers.
