Stryker Makes $1.65 Billion Bet on Robotics

Stryker Corporation President and CEO Kevin Lobo continues to make bold moves to put his mark on Stryker Corporation.

On September 25, 2013, he announced that Stryker was acquiring MAKO Surgical Corp. for about $1.65 billion. The price of $30 per share is an 86% premium to MAKO’s closing price on September 24, 2013 and, according to Needham & Company analyst Mike Matson, represents a 2013E EV/sales multiple of 10.6x. “This is well above the average orthopedics acquisition multiple of 3.1x but perhaps not shocking given MAKO’s leadership position, growth rate, and patent portfolio, ” added Matson.

This is Lobo’s second big strategic move. In March, he announced the completion of the acquisition of Trauson Holdings Company Limited. Trauson is the leading trauma manufacturer in China and a major competitor in the spine segment.

MAKO Surgical Corp.

MAKO was founded in 2004 and pioneered the advancement of robotic assisted surgery in orthopedics. The company markets the RIO Robotic Arm Interactive Orthopedic System and RESTORIS family of implants to enable its flagship MAKOplasty Partial Knee Resurfacing procedure for the treatment of early to mid-stage osteoarthritis. MAKO recently expanded its product offering to include the MAKOplasty Total Hip Arthroplasty, a new robotic arm application for patients in need of a total hip replacement.

The company is also coming off big recent legal wins against competitors over intellectual property, but has been distracted by shareholder lawsuits over revenue expectations.

“MAKO has established a compelling technology platform in robotic assisted surgery which we believe has considerable long term potential in joint reconstruction, ” said Lobo. “The acquisition of MAKO combined with Stryker’s strong history in joint reconstruction, capital equipment (operating room integration and surgical navigation) and surgical instruments will help further advance the growth of robotic assisted surgery. Our combined expertise offers the potential to simplify joint reconstruction procedures, reduce variability and enhance the surgeon and patient experience.”

Maurice R. Ferré, M.D., the leader and founder of MAKO said this board voted unanimously in favor of the acquisition.

Wall Street Praises Deal

BMO Capital Markets analyst Joanne Wuensch wrote that this signifies the start of industry consolidation. “For Stryker, the company takes a step forward into robotic surgery, consolidates its orthopedic silo, and continues its M&A strategy that it has been on for several years.” She added that the take-out price seems high, but strategically the acquisition made a lot of sense.

Wells Fargo analyst Larry Biegelsen said he thinks MAKO represents a differentiated asset in orthopedics that should benefit Stryker in several ways:

(1)  Stryker will eventually be able to put its implants on the MAKO system which should increase adoption of the MAKO robot

(2)  MAKO will help Stryker defend itself against new knee platforms from competitors once MAKO launches its total knee application in the next one to two years

(3)  Stryker should be able to better sell the MAKO robot through its large MedSurg business

(4)  Stryker should be able to leverage the international opportunity given its wider geographic footprint.

Lobo has been head of Stryker since October 2012 when he took over after Stephen MacMillan resigned unexpectedly. With moves into China and robotics, Lobo is clearly shaping the company’s future.