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Smith & Nephew CEO Announces 2018 Retirement; Acquisition Buzz Returns

Updated October 23, 2017: New information reportedly confirms that Elliott Management has acquired a greater than 2% stake in Smith & Nephew. Further, Smith & Nephew has announced its acquisition of Rotation Medical.

Smith & Nephew's Chief Executive Officer, Olivier Bohuon, announced his intention to retire by the end of 2018 after seven years in the position. The Board is searching for his successor.

Mr. Bohuon's tenure includes SNN's acquisition of numerous entities, most notably ArthroCare in 2014, though also:

  • LifeModeler, a provider of biomechanical human body simulation tools and services, 2012
  • U.S. rights and assets for Zimmer's ZUK unicondylar knee, 2015
  • Blue Belt Technologies, developer of the Navio surgical robotics-assistance system, 2016
  • BST-CarGel cartilage repair product, also 2016
  • And various distributors in geographic regions like Brazil, Columbia, Russia, Turkey, etc.

SNN was also itself the subject of multiple acquisition rumors from 2011 to the present, including reported overtures from Biomet, Johnson & Johnson, Medtronic and Stryker.

The rumor mill is turning again, fueled by reports that U.S. activist investor, Elliott Management, obtained a greater than 2% stake in SNN and may now be one of the company's top seven shareholders. (An activist investor, be it an individual or a group, buys up a public company's shares and may try to take seats on its board to push for change. Elliott Management is known as a particularly aggressive one.) Elliott would only need to declare its exact stake if it took more than 3% of SNN's shares. 

New reports are also suggesting that Elliott wishes for Smith & Nephew to sell off portions of its business to become a more attractive acquisition target. On October 23, however, Smith & Nephew announced its purchase of Rotation Medical, developer of tissue regeneration technology for rotator cuff repair.

A change at the helm could lead to an openness for SNN to be purchased, particularly with the departure of Mr. Bohuon, who has voiced opposition to acquisition in the past. Analyst Mike Matson of Needham & Company suggests Stryker and Medtronic as possible candidates for that scenario.

Medtronic has little orthopaedic overlap with SNN, and an acquisition would broaden its product breadth and solidify Medtronic as a full-service orthopaedic company. Medtronic would essentially take SNN’s ranking within the three market segments it plays, becoming #4 in joint reconstruction, #4 in trauma, #2 in arthroscopy/soft tissue.Medtronic has little orthopaedic overlap with SNN, and an acquisition would broaden its product breadth and solidify Medtronic as a full-service orthopaedic company. Medtronic would essentially take SNN’s ranking within the three market segments it plays, becoming #4 in joint reconstruction, #4 in trauma, #2 in arthroscopy/soft tissue.

In Stryker’s case, a SNN acquisition would make the company narrowly #2 to Zimmer Biomet in joint reconstruction, a commanding #2 behind DePuy Synthes in trauma and #1 in arthroscopy/soft tissue. Additionally, the acquisition would broaden Stryker’s international reach. SNN derives nearly half of its revenue from the U.S. and half from ex-U.S. markets, while Stryker derives more than 70% of its revenue from the U.S. (Rankings for each company are outlined in ORTHOPAEDIC DEVICE COMPANY PROFILES: THE TOP 5, a complimentary Member report.)

For 1H17, ORTHOWORLD estimated SNN's orthopaedic revenue at $1,660.9MM, rising +2.0% vs. 1H16, with growth deriving from NAVIO, Q-FIX shoulder repair, ULTRABUTTON knee repair, the TRIGEN INTERTAN hip fracture system and JOURNEY II total and LEGION revision knees.

ORTHOWORLD estimates for 2016 placed Smith & Nephew at #4 among the top five orthopaedic performers, and #2 in the arthroscopy/soft tissue repair segment (AR/ST), trailing Arthrex by ~$320.0MM and commanding about 1/4 of the global AR/ST market.

Sources: Smith & Nephew plc; ORTHOWORLD estimates

 

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