Smith & Nephew and Plus Orthopedics: A Deal Drawn to Scale

A flurry of deal activity—which has seen four acquisitions in as many months—is once again raising the question that industry insiders have asked themselves periodically over the past decade: is the orthopedics industry poised for a wave of significant consolidation? (See Exhibit 1.)Smith & Nephew PLC, which was outbid by Zimmer Holdings Inc. in its attempt to acquire European orthopedics firm Centerpulse AG in 2003--and again recently when a consortium of private equity buyers topped its bid for Biomet Inc.--has become the latest acquirer. [See Deal][See Deal] It announced in March that it would buy privately held Swiss company Plus Orthopedics AG . [See Deal] The acquisition gives Smith & Nephew a 12% global market share in the total reconstruction market, bumping it up to the global number-four position after Zimmer, which has a wide lead with 29% of the market, followed by Johnson & Johnson’s DePuy Inc., which holds a 22% share and Stryker Corp., with 20% of the market. With the Plus acquisition, Smith & Nephew moves just ahead of Biomet.

Smith & Nephew will pay $889 million for Plus, including the assumption of debt. The purchase price is approximately three...