Zimmer, Biomet to join forces in $13.4B deal

Zimmer ($ZMH) and Biomet signed a deal to combine forces and form an orthopedics giant in the $45 billion musculoskeletal industry. The companies had combined revenues of $7.8 billion in 2013.

Zimmer CEO David Dvorak

Zimmer will acquire Biomet for about $13.4 billion, including assumed debt. The transaction will be financed with $10.4 billion in cash and $3 billion in Zimmer stock issued to Biomet equity holders, and is expected to close in the first quarter of 2015.

"We believe that current demographic and macroeconomic trends affecting the healthcare industry will reward companies that successfully partner with other key stakeholders to improve patient care in a cost-effective manner," Zimmer CEO David Dvorak said in a statement.

Biomet was acquired by buyout specialists including Blackstone Group in 2007 for $11.3 billion, according to The Wall Street Journal. Biomet filed for an IPO in March to raise up to $100 million, but Zimmer's statement said Biomet is withdrawing from the transaction.

Biomet CEO Jeffrey Binder

"Our combined scale will extend the reach and influence with which we pursue our common passion: delivering products and services that benefit our customers and the patients we ultimately serve," said Biomet CEO Jeffrey Binder in a statement.

Zimmer expects to achieve $270 million in synergies by the third year of the combined company, with half of the savings achieved in the first year, Dvorak said during the company's Q1 2014 earnings call.

Dvorak acknowledged that there will be some dis-synergies in the short run as the companies consolidate accounts and said during the earnings call that he expects market growth during this period, followed by above-market growth in the long run.

He stressed that the combined company will be better able to serve customers, such as hospital systems, from both a cost-effectiveness and patient outcomes perspective.

"We know that the industry we are serving is going to consolidate," Dvorak said during the earnings call, predicting that hospitals are going to look for costing savings by partnering with fewer vendors that offer a broader portfolio of products and services.

Zimmer's spine and dental units will double in size, Dvorak said during the earnings call. But he added that the combined company--which the statement says will conduct business under a consolidated name following closing--is going to focus on offering not just products, but "solutions," such as preoperative planning. The spine unit had quarterly sales of $48 million and the dental unit $61 million, according to Zimmer's earnings announcement released today.

The combined company will be based in Warsaw, IN, site of both of their current headquarters.

Dvorak hinted that the deal came together suddenly and relatively quickly saying, "this over the last several weeks has been a concentrated effort."

Zimmer reported net sales of $1.16 billion in Q1 2014, an increase of 2% over the prior year period. Reconstructive orthopedics are its main focus, and accounted for $872 million in net sales.

- read the release
- here's the WSJ's take (sub. req.)
- get Bloomberg's coverage

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