Medical Devices

K2M to Be Acquired by Stryker for $1.4B: What to Know

Posted on August 30, 2018

Stryker ($SYK) announced they are acquiring K2M Group ($KTWO) for a total equity value of approximately $1.4 billion. Stryker intends to acquire all of the issued and outstanding shares of common stock of K2M Group Holdings, Inc. (NASDAQ: KTWO) for $27.50 per share.

What to know: 

1. In previous conference calls, Stryker CEO, Kevin Lobo, has pointed out Stryker's goal of prioritizing M&A, which has become a core strength for Stryker in both identifying attractive targets and executing post closing. Novadaq and Entellus are two of the most recent examples of Stryker's willingness to prioritize M&A.

2. On Stryker's M&A and capital allocation strategy: During the Q1 earnings call, Stryker's Katherine Owen, said, "Really there's no change in terms of what we're seeing in the market and our capital allocation strategy, which continues to prioritize M&A from the vast majority of the deals, and we've done a lot of them over the past 10 years or so, tend to be small to midsize. They tend to be the NOVADAQ type of deals that we can tuck into an existing sales and marketing infrastructure. And they really do help drive stronger organic sales growth that we've seen that consistently year in and year out."

Owen continued, "We do have the ability, given our scale and cash flow, to make bigger bets. And we've done that when you think back to Mako or Sage and Physio and I think you should assume going forward that M&A is going to continue to be a priority in terms of our use of cash because we're committed to driving faster organic sales growth at the high end of med tech."

3. K2M is generating revenue near $300 million, which will help bring a highly complementary and innovative portfolio to Stryker's Spine division. With the Spine market in general being flat, the addition of K2M's broad portfolio will help strengthen Stryker's Spine offering in the core spinal segment, including an attractive minimally invasive spine portfolio. K2M has exceeded industry average as they've driven a double-digit growth over the past five years.

4. "This acquisition underscores our commitment to the spinal market, which is the largest segment of Orthopaedics with significant unmet needs," stated Kevin A. Lobo, Chairman and Chief Executive Officer, Stryker. "We believe K2M will significantly enhance our presence with surgeons, patients and employees in both the spine and related neurotechnology markets."

5. "Joining Stryker will be a very exciting next chapter for our global team and surgeon customers around the world," said Eric D. Major, Chairman, Chief Executive Officer, and President of K2M. "Stryker's established leadership in the orthopedic and neurosurgical market, combined with K2M's culture of innovation and leadership in complex spine and minimally invasive solutions, represent a powerful opportunity for Stryker to strengthen its leadership in the $10 billion global spine market."

Eric D. Major is expected to be appointed as the President of Stryker’s Spine division.