In a bid to add more assets to its portfolio,
), one of the world's leading medical technology companies,
entered into two definitive agreements to acquire German surgical
tools firm, Berchtold Holding, and U.S.-based developer of hip
arthroscopy products, Pivot Medical, Inc., last month.
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Following the announcement of the proposed Berchtold acquisition,
shares rose 0.6% to open at $83.81 on Feb 18. The stock, however,
recorded an intra-day fall of 1.4% to close at $82.62. It is
interesting to note that Stryker stock hit a new 52-week high of
$83.86 in the previous trading session. Since the announcement of
both the acquisitions, shares declined 1.8% till the last closing
The Berchtold Acquisition
Berchtold, a privately-held business, is a provider of surgical
infrastructure equipment with operating facilities in Germany and
the U.S. Berchtold's product portfolio comprises surgical tables,
equipment booms, and surgical lighting systems committed towards
maximizing efficiency and safety in operating rooms and ICUs.
The acquisition is expected to boost Stryker's fast growing
endoscopy division and operating room equipment product portfolio
by adding complementary solutions. The deal allows Stryker to
strengthen its portfolio and broaden its hospital product
Stryker will acquire Berchtold for an enterprise value of $172
million. Subject to standard anti-trust regulations, the
transaction is anticipated to close in the second quarter of
2014. It is expected to be neutral to Stryker's 2014 earnings per
share excluding acquisition, integration-related and intangible
The Pivot Acquisition
Pivot, a privately held business, sells products for hip
arthroscopy with operating facilities in Sunnyvale, Calif. It
specializes in hip arthroscopy procedures treating
femoroacetabular impingement syndrome (FAI). Pivot's platform of
instruments and implants provide efficient access to and restore
mobility of the hip with minimal incisions.
Pivot's offerings are expected to complement Stryker's existing
Sports Medicine portfolio and will provide Stryker's customers
with more comprehensive solutions to address certain challenges
faced during current Sports Medicine procedures.
Stryker will acquire Pivot in an all cash transaction. Subject to
customary closing conditions, the transaction is anticipated to
close in the first quarter of 2014. The acquisition is expected
to be neutral to Stryker's 2014 earnings per share, excluding
acquisition, integration-related and intangible amortization
Recent M&A Activity
In Dec 2013, Stryker completed its $1.65 billion acquisition of
Mako Surgical Corp. and its robotic-surgery platform. The
acquisition complemented Stryker's existing line of replacement
hip and knee joints and is intended to improve procedural
Stryker also announced the acquisition of Irvine, Calif.-based
Patient Safety Technologies Inc for $120 million in the same
month. The acquisition helped Stryker gain access to Patient
Safety's device to reduce the risk of surgical sponges being left
in patients after surgery.
Both the Berchtold and Pivot deals could not boost investors'
confidence in Stryker because these are expected to be neutral to
2014 earnings, excluding charges. In fact, investors are much
more concerned about the company's weakening liquidity and higher
In 2013, net cash deployed in investing activities doubled to
$2,217 million fueled by the increased number of acquisitions
during the year, resulting in a 4% drop in the cash balance to
$1,339 million as of Dec 31, 2013.
The balance sheet also indicated a stupendous 56.8% rise in
long-term debt to $2,739 million as of Dec 31, 2013. Despite
currently having a low debt-to-equity ratio of 0.30, it is still
higher than 0.20 in the previous year, calling for better debt
Quick ratio declined sharply to 2.07 in 2013 from 3.05 in the
previous year, indicating weakened liquidity. In the wake of such
shaky financial indicators, investors remain cautious of the
future outlook of the firm.
Currently, Stryker carries a Zacks Rank #2 (Buy). Some other
stocks worth considering in the medical instruments industry
). While Enzymotec holds a Zacks Rank #1 (Strong Buy), both
Covidien and Nuvasive carry a Zacks Rank #2 (Buy).