Smith & Nephew strikes again, bolstering emerging markets with Russian trauma and orthopedics buy

Emerging markets are already a strength for orthopedics player Smith & Nephew ($SNN). Now it's rounding out its presence with the acquisition of trauma and orthopedics business as well as a manufacturing company DeOst Group. The Russian company manufactures medical devices and has also served as Smith & Nephew's product distributor in the region since 2009.

Smith & Nephew CEO Olivier Bohuon

Growth in the emerging markets is one of the 5 pillars the company has laid out to drive its longer-term strategy, which also includes growth in established markets, innovation, simplification and acquisitions. China and the Middle East are among its particular emerging market footholds--with an average of more than 15% revenue growth from emerging markets in 10 out of the last 12 quarters, Smith & Nephew CEO Olivier Bohuon said on a February earnings call.

That's much higher than its overall revenue growth rate in 2014 of only 2% to $4.6 billion. Earlier this year, Smith & Nephew also acquired a distributor in Latin America.

"In emerging markets, we continue to perform strongly, delivering 17% revenue growth in 2014, with our performance in China again being the highlight," Bohoun said on the call. "In 2015, I expect a similarly strong performance. This will be driven by our existing premium-tier business, including a greater contribution from Latin America, particularly in Brazil."

The company is actively working to improve the portion of its revenues coming from emerging markets. Emerging market revenues accounted for 15% of total 2014 revenue--that's up from 8% in 2010.

In the DeOst deal, Smith & Nephew gains a commercial channel into the Russian market that it expects to take more advantage of than under the prior distribution partnership. The company said it expects to now be able to offer a wider range of products and services. In addition, it expects to gain manufacturing capacity for its mid-tier trauma products that it anticipates will allow it to reach more Russian customers. Financial terms of the deal remained undisclosed.

The Russian government is increasingly hostile to foreign medical device companies and this acquisition is expected to give Smith & Nephew an edge on that front.

"Smith & Nephew has grown its business in Russia since 2005," Bohoun said in a statement about the deal. "This investment, in-line with our strategy to build our platform in the emerging markets, significantly boosts our local presence and prospects and will enable us to take advantage of market dynamics and better serve Russian customers."

Smith & Nephew gained 3% in early trading on the July 10 news.

- here is the release