Smith & Nephew in talks to buy NuVasive for over $3bn
FTSE 100 medical devices maker considers acquisition of spinal surgery specialist
Arash Massoudi in London and Eric Platt in New York
Smith & Nephew has held talks to buy NuVasive, a maker of medical instruments used in spinal surgery, in a deal that would be worth more than $3bn and mark the largest acquisition by the British medical devices group, people with direct knowledge of the talks said.
The exact terms of any discussions could not be learned and talks between the two sides may fall apart, these people said. It is possible that the revelation of the talks may lead the discussions to end.
If a deal is reached, the acquisition would signify the first major move by S&N’s chief executive Namal Nawana since he took up the post less than a year ago.
In short order, Mr Nawana has overhauled much of the FTSE 100 company’s executive leadership and begun to discuss using dealmaking as a way to grow in businesses adjacent to its existing product lines in orthopaedic reconstruction, sports medicine and wound care.
California-based NuVasive has a market value of roughly $2.5bn, excluding debt of about $500m. The company’s share price has declined 32 per cent from an October high, when it named a new chief executive. NuVasive shares climbed 24 per cent in after-hours trading on Friday after the Financial Times reported the talks.
Meanwhile, S&N shares have risen 23 per cent over the past year, giving the company a market value of £13.3bn. The deal would marry S&N, known for making hip and knee replacements, with a faster growing business.
S&N declined to comment. NuVasive said the company “does not comment on market speculation or rumours”.
NuVasive reported a 5 per cent rise in sales to $1.1bn in 2018, before acquisitions and shifts in currencies, eclipsing the 2 per cent underlying revenue increase recorded last year by 163-year-old S&N. The results from NuVasive nonetheless fell short of Wall Street expectations, which weighed on its shares. Analysts with UBS warned in January that the spinal surgery market was at risk of slowing.
On a call with analysts this week, Mr Nawana said that S&N was looking at deals “to get access to adjacent markets, and where there’s a good strategic fit”. He said that the company’s low level of gearing and strong cash conversion gave it the capacity to proceed with dealmaking.
The company’s chief financial officer added that investors should expect the group to maintain its investment grade credit rating but that its ratio of net debt to earnings before interest tax depreciation and amortisation may rise to between 2 and 2.5 times, up from its current level of about 0.8 at the end of 2018.
The UK group has faced pressure from activists including Paul Singer’s Elliott Management to shed underperforming businesses, and has itself often been touted as a possible takeover target by larger US rivals. S&N’s board is led by chairman Roberto Quarta, the private equity executive, who also heads the board of advertising and marketing group WPP.
Mr Nawana has a history as a dealmaker. He led the turnround of medical diagnostics maker Alere before overseeing its sale to Abbott in 2017 for $7.8bn including debt. The sale of the business initially ran into trouble however, with Abbott ultimately agreeing to buy the company at a lower price after Alere received a grand jury subpoena from the US Department of Justice over its sales practices and delayed filing an annual report with securities regulators.
Before Alere, Mr Nawana spent more than 15 years at Johnson & Johnson, including time as president of its DePuy Synthes spine business.