Stryker Corp., the second-largest seller of orthopedic devices, agreed to buy Mako Surgical Corp. for $1.65 billion to add technology for robot-assisted surgery.
Investors in Mako will receive $30 a share from Kalamazoo, Michigan-based Stryker, the companies said today in a statement. The offer carries an 86 percent premium over Fort Lauderdale, Florida-based Mako’s closing price yesterday.
Mako, founded in 2004, pioneered the use of robotic- assisted surgery in orthopedics. It sells the Rio Robotic Arm, which enables surgeons to precisely and consistently cut through bone. The incisions are designed for the company’s Restoris implants, including partial knee resurfacing in people with early or mid-stage osteoarthritis. Mako recently added an application for total hip replacements.
“The take-out price seems high, but strategically it makes a lot of sense,” said Joanne Wuensch, an analyst at BMO Capital Markets in New York, in a note to investors today. “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.”
The transaction, not including acquisition and integration costs, will dilute Stryker’s adjusted earnings by 10 cents to 12 cents a share in the first year, be neutral in the second year and accelerate growth thereafter. Stryker said it expects Mako to issue another 3.953 million shares in connection to an acquisition that Mako anticipates to complete.
Stryker fell 2.7 percent to $68.89 at 9:32 a.m. New York time. Mako gained 82 percent to $29.48.
Stryker Chief Executive Officer Kevin Lobo said the addition of Mako’s technology to his company’s established position in operating rooms, joint reconstruction and surgical instruments will spur the growth of robotic assisted surgery.
“Mako has established a compelling technology platform in robotic assisted surgery which we believe has considerable long- term potential in joint reconstruction,” he said in a statement. “Our combined expertise offers the potential to simplify joint reconstruction procedures, reduce variability and enhance the surgeon and patient experience.”
The deal is likely to signal the start of additional industry consolidation, Wuensch said.
“We anticipate that the transaction will drive the other M&A medtech targets’ stock prices higher, as the musical chairs move in consolidation has begun,” she wrote.
Stryker got financial advice on the transaction from Citigroup Inc. and legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP. Mako received financial advice from JPMorgan Chase & Co. and legal counsel from Wachtell, Lipton, Rosen & Katz and Foley & Lardner LLP.
For more on medical devices, see "Medical Devices Drive Health Care M&A."