The deal: Wright buyout of Tornier
The price tag: $3.3 billion
Inversion? Yes, the combined company, Wright Medical Group N.V., will be headquartered in The Netherlands
Status: Announced; closure hoped for in first half of 2015
Why it matters: Few industries are consolidating as fast as the orthopedics industry. This is the second of three orthopedics mergers that were among the 10 biggest of 2014--and rumors of Stryker's ($SYK) takeover of Smith & Nephew ($SNN) persist.
The plethora of ortho mergers is taking place because hospitals have become tougher negotiating partners when it comes to purchases of orthopedics. They are consolidating and purchasing fewer models of the same device in order to buy in even greater bulk. On top of that, a lack of clinical differentiation among the orthopedics players means they are competing mainly on price, which is a function of the scale of their production.
This deal shows that those trends even extend to the relatively fast-growing extremities segment. It's also a rare merger of equals. At the time of the announcement, Tornier ($TRNX) quarterly revenues were $76.7 million, while Wright ($WMGI) reported quarterly net sales of $71.3 million.
Both companies make implants to fix or replace the wrist and ankle as well as biologics to encourage healing and tissue regeneration. Tornier's U.S. portfolio also includes implants for the shoulder and elbow, as well as surgical tools enabling sports medicine.
The new company is expected to have revenues growing in the mid-teens. Cost synergies are expected to be in the range of $40 million to $45 million within the first three years after the transaction completes. These synergies will be due to overlapping public company expenses, support function and system costs as well as process and vendor consolidation.
The deal seems to have overcome the new Treasury Department rules designed to deter tax inversions, but Wright says the goal of closure in the first half of the year is now "a best scenario" because the Federal Trade Commission has antitrust concerns about Tornier's lower extremity products.
Wall Street believes that a divestment of Tornier's ankle business could be in the offing. After all, if there's anything the ortho mergers have taught us, it's that initial deals lead to more deals.
FTC probes Wright, Tornier merger again, may push deal close into the second half
Wright, Tornier merge in $3.3B inversion deal to create extremities and biologics pure play