Zimmer Acquires Synvasive Tech. - Analyst Blog

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Zimmer Holdings ( ZMH ) has acquired Nevada-based Synvasive Technology, bringing in devices like Stablecut surgical saw blades and eLibra Dynamic Knee Balancing System for soft tissue balancing to its product suite. The financial details of the deal were not divulged.  

For the past two decades, Synvasive has established itself as a provider of advanced surgical cutting technology. The Zimmer management is confident that the acquisition will strengthen its surgical resection and advanced instrumentation offerings.

Over the recent past, Zimmer's Surgical business has been performing well driven by its bone cement, wound debridement and tourniquet products. Besides, the acquisition of Switzerland based SoPlus Surgical Power Equipment has broadened Zimmer's portfolio of surgical power tools incorporating large and small bone systems in consumables, thus strengthening its position in this billion dollar-plus market. Full introduction of the surgical power equipment line in 2012 is expected to contribute to further growth in this business.

Although the musculoskeletal market is witnessing several challenges in the form of reduced procedure volume and pricing pressure, Zimmer believes that clinically relevant and innovative products can still fetch premium pricing and reimbursement. Along with the focus to drive Reconstructive and Emerging businesses, Zimmer is exploring opportunities to expand its reach into early intervention products.

Zimmer exited the most recent quarter with $553 million in cash and cash equivalents, down from $668.9 million at the end of December 2010 with long-term debt of $1.5 billion ($1.1 billion at the end of fiscal 2010). Armed with a strong cash balance, Zimmer intends to return 1/2 of its net income to stockholders through annual share repurchase programs and target suitable acquisitions in the musculoskeletal space.

However, reconstructive procedure volumes continue to be under pressure. This scenario was more evident in the US in the previous quarter, which was marred by lower consumer confidence and high unemployment rates. The company expects the challenging scenario to continue in the near future. Other companies in the orthopedic device space such as Smith & Nephew ( SNN ) and Stryker Corporation ( SYK ) also face a similar situation. Earlier this week, Stryker provided preliminary results for the fourth quarter and fiscal 2011 and unveiled outlook for fiscal 2012. The organic growth outlook provided by it indicates sustained pressure in the core orthopedic business.

Zimmer currently retains a Zacks #3 Rank (short-term Hold rating). We also maintain our long-term Neutral recommendation on the stock.


 
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