On September 1, 2023, Zimmer Biomet said goodbye to its Chief Executive Officer of six years, Brian Hansen, 56 years old, who is joining the 3M spin-off, “New Healthcare Company” as its CEO.
Taking Zimmer’s reins will be Ivan Tornos, 44 years old, whose 4-year tenure at Zimmer has included an increasing set of responsibilities—starting in 2019 as Group President – Global Businesses and Americas and, effective September 1, 2023, President and Chief Executive Officer.
Of Zimmer Biomet’s 23 senior executives, Tornos is younger than 21 of them.
Bryan Hansen’s Tenure
When Hansen joined Zimmer Biomet from Medtronic’s $9 billion Minimally Invasive Therapies Group in 2017, investors were valuing Zimmer at $23.5 billion, annual sales were $7.8 billion and annual profits were $1.8 billion.
Six years later, as he is leaving, Zimmer Biomet’s market value is 6% higher at $25 billion, annual sales, however, are down 5% to $7.4 billion, and earnings are down 17% to $1.5 billion.
Under Hansen’s leadership:
- Zimmer Biomet, in 2018, initiated a two-year (consisting of 2018 and 2019) effort to increase Zimmer Biomet’s sales growth rates to market levels or higher. (Market levels for musculoskeletal industry revenue growth were between 4-6%, which is low and is caused, in part, by pricing pressures and an overall slowdown in clinically, logistically and outcome relevant innovation).
- Zimmer Biomet endured a massive 38% decline in revenue during the COVID ravaged second quarter in 2020. That shock to the entire musculoskeletal system presented Hansen with a once-in-a-century business challenge and he and his team rose magnificently to that challenge.
- Zimmer spun-off its spine and dental businesses, about $1 billion in product revenues, into an independent company—eventually named ZimVie—whose stock would trade in the public markets. The announcement was, in effect, an extension of Hansen’s original two-year restructuring program.
- Zimmer significantly increased its investment in digital technologies—through people, partnerships, and acquisitions.
Looking back, Hansen fought the good fight. COVID derailed many of his plans, but in that emergency, Zimmer Biomet, I think, benefited greatly from Hansen’s leadership. While his original goals may not have been achieved, Hansen does give Tornos a slimmed down and more digitally focused Big Blue.
A strong platform, in other words, to potentially realize the goals from 2018—higher rates of sales growth and profitability.
To employees, stakeholders, and institutional investors, incoming CEO Tornos said: “It is an honor to be appointed CEO of Zimmer Biomet at a time when our execution is extremely strong, and our innovation momentum is at an all-time high. I am grateful for Bryan’s leadership in transforming the Company and am now looking forward to leading the team and accelerating our ZB strategy to drive continued growth and boldly advance the standard of musculoskeletal care.”
Indeed.
Tornos is facing, as all the senior executives at the handful of large integrated suppliers of musculoskeletal products do, a slow growth industry with chronic pricing pressure—and financial pressures which steer innovation into the 510(k) box.
Adding to this complex picture is the aging of artisanal, craft-based surgery and the emergence of process and computational medicine driven surgery.
Given these macro trends, will Tornos and the team he leads be able to find the path to higher revenue and profit growth?
And Now, a Word About Spin-Offs
It’s kind of interesting that Hansen engineered the largest spin-off in the history of orthopedics—and then chose to join one himself (3M’s intended spin-off of its $8 billion healthcare business).
Is this a trend?
Harvard managerial pitchman, Michael Porter, famously opined that successful companies tend to “stick to their knitting’”and singled 3M out as just such an excellent company. In many ways, Porter’s admonition came at the end of the conglomerate era where companies, like 3M, cobbled together odd varieties of companies with no discernible synergy. The rationale for unraveling those BCG inspired conglomerations was, in Porter’s words, a desire to return to “your knitting.”
These days a different imperative seems to be fueling the spin-off rage. Indeed, most every major company seems to be in the mood to jettison something.
That imperative, as opposed to “sticking to your knitting” is now, essentially, the “fresh start.”
And with that fresh start, hopefully, a more nimble, creative and growth-oriented company—which, in the last remaining major analog industry known as healthcare—will require managements who can bring a new frame of reference to the business.
Kellogg, GSK, Johnson & Johnson, General Electric, and IBM all recently announced a spin off.
A recent study looked at more than 350 public spin-offs valued at greater than $1 billion between 2000 and 2020. Fifty percent of those companies did NOT create any new shareholder value two years down the road. Twenty-five percent lost significant shareholder value.
In every case, of course, management told their shareholders that the spin-off was a way to create value because managers would be more focused, more growth opportunities, targeted capital allocation, and the ability to excite prospective investors.
Certainly, in the case of Zimmer’s spin-off, ZimVie—a company I happen to like, and think is undervalued—those conclusions seem to have been borne out.
According to a new study by Goldman Sachs, corporate spinoff activity surged by 33% in 2022 to its second-highest level on record. Mergers and initial public offerings, by contrast, are few and far between. Last year, forty-four new spinoffs were announced, twenty were completed, worth a total of $61 billion.
Eleven of the 20 spin-offs analyzed by Goldman outperformed the S&P 500; only six outperformed the company that spun them off.
Goldman’s analysts expect that trend to keep going in 2023 and 2024. In their view, economic pressures, rising interest rates, peaking profit margins, and below-trend economic growth, are fueling the spin-off rage.
Enter Tornos
Zimmer Biomet now begins the Tornos era—one that, hopefully, can last a decade or more.
Reading Tornos’s LinkedIn was more interesting than I expected. People rave about him. The most common words used to describe him were “energetic,” “smart,” “inspiring,” “relatable” and “leader.” Most writers said that they felt fortunate to have known and worked with him.
Tornos should be interesting. Do stay tuned, for sure.
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