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SIBC Goldman Sachs : Stryker/Smith & Nephew
1. University of Notre Dame – Goldman Sachs
Team Wolfpack
Project: Stryker
Team: James Ganas, Mark Grasberger, Nathaniel Marti, Mitchell Revich, Maria Rolon
Leader: Stephen Schafer
2. SIBC
The Team
2
Mark Grasberger
Major: Finance
Minor: Energy Studies
Hometown: Lancaster, PA
Mitchel Revich
Major: Finance
Minor: Entrepreneurship
Hometown: Brooklyn, NY
Nathaniel Marti
Major: Finance and Medieval Studies
Hometown: Cedar Rapids, IA
James Ganas
Major: Finance and Math
Hometown: Palatine, IL
Maria Rolon
Major: Finance
Hometown: Cochabamba, Bolivia
Stephen Schafer
Major: Finance and Economics
Hometown: Edgewood, KY
3. SIBC
Executive Summary
3
Proposed
Merger
Target Profile
Synergies
Stryker
Overview
Investment
Thesis
Stryker and Smith & Nephew Plc enter into a merger of equals benefitting both
sides as their new company becomes a dominant player in the orthopedic market.
Smith & Nephew is an English-based medical device company specifically focused on
delivering advanced technologies in orthopedics. It is globally competitive with a
presence in over 100 countries.
There are an estimated $130 million dollars worth of synergies attributable to cost
synergies. There would be lower R&D costs, facility costs, labor costs, and
marketing and sales costs.
Stryker is a medical technologies company focused on Orthopedics, MedSurg, and
Neurotechnology & Spine. With $9.68 billion in revenue, stable growth YOY, and
numerous strategic acquisitions, Stryker is considered a global market leader.
Stryker’s acquisition of Smith & Nephew will not only establish a leading position in
the hip and knee replacement market, but it will also allow Stryker to take
advantage of potential growth in emerging markets.
4. SIBC
Agenda
4
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
5. SIBC
Macroeconomic Overview
5
Global Currencies Against the USD
0.7
0.9
1.1
1.3
1.5
1.7
1.9
Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015
EURUSD GBPUSD CADUSD
United States
Increasing obesity levels
among children
Strengthening economic
recovery
Aging population
Rate increase expected 3Q
2015
Europe
Stronger policy towards
easing
Unemployment and low
inflation still concerns
Negative population growth
EU raising funds to
encourage investment
Asia Pacific
Increased public health
care spending in China
China has lowest growth
target in 20+ years
Weaker-than-expected
growth in Japan
Easy monetary policy
Globe
Slowing expansion in
emerging markets
Low oil prices supporting
moderate GDP growth
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0
10
20
30
40
50
60
2010 2012 2014 2016E 2018E 2020E
Million % change
US Population Over Age of 65
Slowing population growth
Source: World Bank, U.S. Census Bureau, IMF
Potential mkt reactions to
U.S. QE withdrawal
Increasing obesity levels
among children
Strengthening economic
recovery
Aging population
Rate increase expected 3Q
2015
Stronger policy towards
easing
Unemployment and low
inflation still concerns
Negative population growth
EU raising funds to
encourage investment
Increasing obesity levels
among children
Strengthening economic
recovery
Aging population
Rate increase expected 3Q
2015
6. SIBC
Agenda
6
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
7. SIBC7
• Technological innovation will slow
• Less favorable risk-reward profile for investors
due to increasing development timelines and
regulatory burdens
“One Size Fits All”
• Trend for having customized products for
individual needs can make the use of generic
equipment obsolete
• Developing customized solutions takes time
Regulations/Legal
Compliance
• Devices in other parts of the world are less
regulated than they are in the US and Europe
• Possible future repeal of Obama Care would bring
down population that has access to healthcare
Reduced Venture
Capital Investment
Industry Revenue $361B
CAGR (2014-2019) 4.4%
Annual Growth (09-14) 4.0%
Annual Growth (14-19) 4.8%
Federal Funding for Medicare &
Medicaid (2014)
$827.6B
Federal Funding for Medicare and
Medicaid (2016)
$929.5B
Developing
Markets
Aging Population
• Adoption of more advanced medical device
technology in China, Asia-Pac and Latin America
• Demand for medical supplies in third world
countries is increasing
• Baby Boomers started reaching ages of 65+;
proportional increase from 7 to 16% by 2050
• Amount of medical expenditures and physicians
visits positively correlated with age
Adoption of
National
Healthcare
• Increase in the amount of people that now have
access to Healthcare
• Overall market increases
• Introduction of new consumer segment
Sources: IBIS World, Company Filings, Global Market for Medical Devices, 5th Ed.
• Industry revenues are expected to continue to grow as developing markets continue to adopt medical device technology, but investor
confidence is yet to recover due to increasing development timelines and demand for personal customized products which present the
risk of changing the industry’s product mix
38%
28%
9%
8%
5%
7%
5%
USA
Europe
Japan
China
Asia-Pacific
Latin
America
ROW
4%
30%
29%
28%
9%
Dental
Equipment
Orthopedic
Devices and
Hospital Supplies
Electromedical
Equipment
Surgical and
Medical
Instruments
Other
Medical Device Industry Overview
Key Statistics (2014)
Potential Growth Factors Potential Risk Factors
Sales By ProductSales By Geography
8. SIBC
Global Medical Device Landscape
8
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0
100
200
300
400
500
2013 2014 2015 2016 2017 2018
Global Medical Device Market
Company Payment
Johnson & Johnson $200 million
Boston Scientific $73 million
Covidien $60 million
Stryker $55 million
Hill-Rom $12 million
• New excise taxes hinder R&D
• FDA requires stricter guidelinesUnited States
• Covered by EU
• Devices approved more quickly to market
• Release devices an average of 3 years
sooner than US
Europe
• Thorough safety examinations by
government
• No special taxation on medical devices
Japan
• Significantly less costly than developed
countries
• Open market for advanced medical
technologies
China
• Recent tax provisions will stunt US growth in coming
years
• Hamper startups by delaying profitability
• Negligible global healthcare reform provides a
market ripe for R&D elsewhere
• In 2013-2014, key market players were active in
acquiring companies
• Reimbursement cuts in US and Europe will disrupt
even the most innovative of device companies
• Increasing preference for European product
launches dues to speed of approval leading to lower
costs
Overview
Medical Device Excise Tax Payment in US (2013)
Regulation Severity by Country
Sources: IBIS World, Global Market for Medical Devices, 5th Ed.
• Favorable market and government regulatory conditions elsewhere are tempting companies to migrate their sales efforts to
emerging markets.
9. SIBC
Orthopedic Market
9
Market Cap:
$283.78 B
2014 EBITDA:
$24.99 B
% Revenue:
25.4%
Market Cap:
$19.95 B
2014 EBITDA:
$1.79 B
% Revenue:
12.3%
Market Cap:
$76.67 B
2014 EBITDA:
$5.70 B
% Revenue:
8.6%
•$35 Billion, expected to grow to $41 Billion by 2019
Global Market Cap
•Expected CAGR of 4.9% (2013 – 2019)
Growth
•Sports Medicine, Trauma, orthopedic knee devices,
orthopedic hip, and orthopedic consumables
Main Areas of Development
Favorable Secular Demographic Trends
• The Orthopedics Market faces a stable and growing demand driven by an aging population. This includes a rise in
osteoporosis-related fractures and musculoskeletal diagnoses.
Key Market Participants
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dislocations Infective
Arthritis
Back
Problems
Rheumatoid
Arthritis
Sprains/
Strains
Osteoarthritis Osteoperosis Hip Fracture
% of Musculoskeletal Diagnoses Which are for
Individuals 65 or Older
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Japan Italy France Germany Australia UK Mexico USA
Global Obesity Growth
1990 2000 2010 2020E
Sources: IBIS World, Global Market for Medical Devices, 5th Ed.
10. SIBC10
Agenda
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
11. SIBC
Company Overview
11
Overview: Stryker designs and manufactures medical technologies.
Their products include implants used in joint replacement, surgical
equipment and surgical navigation systems, patient handling and
emergency medical equipment, neurosurgical and neurovascular
devices, and other medical device products.
Orthopedics
Implants used in joint
replacements and
trauma/extremities
surgeries
MedSurg
Instruments,
Endoscopy, Medical,
Sustainability, and
other medical device
products
Neurotechnology
and Spine
Neurosurgical and
neurovascular
devices
Founded: 1941
Headquarters: Kalamazoo, Michigan
Employees: 22,000+ worldwide
Key Executives:
Kevin A. Lobo, Chairman,
President, & CEO (2011)
Announced Date Target Size ($mm)
Jan-05-2015 CHG Hospital Beds, Inc. -
Jul-07-2014
Stryker Corporation, Bone
Morphogenetic Protein-7
-
Jun-30-2014 Small Bone Innovations, Inc. $375
Apr-25-2014 CoAlign Innovations Inc. -
Feb-19-2014 Pivot Medical, Inc. -
Feb-18-2014 BERCHTOLD GmbH & Co. KG $184
Dec-31-2013 Patient Safety Technologies, Inc. $112.57
Oct-22-2013 ActiViews, Ltd. $20
Oct-02-2013 Pipeline Biomedical, Inc. $119.33
Sep-25-2013 MAKO Surgical Corp. $1,511.28
Sources: Company Filings, Capital IQ
Three Main Sectors
Revenue Breakdown by Segment
Recent Acquisitions
Key Statistics
Revenue $9.68B
EBITDA $2.60B
EBITDA Margin 26.9%
Market Cap $34.58B
Enterprise Value $33.55B
P/E 16.93x
EPS $2.79
TEV/EBITDA 12.9x
Long-term Debt $3.25B
Neurotech
& Spine
18%
Orthopaedics
43%
MedSurg
39%
$9.7B
2014 Sales
• Company-wide growth of
7.3% in 2014, including
5.8% organic growth
• In continuation of its
capital allocation
strategy, SYK invested
$916M in acquisitions,
paid $462M in dividends,
and used $100M for a
share buyback
12. SIBC
Segment Overviews and Growth
12
• $4.153B in 2014 sales (43% of total)
• Technologies include robotic-arm
assisted surgery support instruments
• Competitors: Zimmer Holdings Inc.,
DePuy Synthes Company, Biomet Inc.,
Smith & Nephew
• Recent Transactions:
• Acquired assets of Small Bone
Innovations Inc. to focus on small
joint repair
• Acquired MAKO in September
2013 to advance the growth of
robotic arm assisted surgery
• Implants used in hip and knee
replacements, trauma & extremities,
foot & ankle, bone cement, and other
reconstructions.
• Surgical instruments, endoscopy,
emergency medical equipment as well
as various remanufactured medical
devices.
• Neurovascular and interventional spinal
products, biosurgery products, and
equipment for brain and skull surgeries
• $3.781B in 2014 sales (39% of total)
• Surgical instruments and endoscopy
make up majority or revenue
• Instrument competitors: Zimmer,
Medtronic PLC., ConMed Linvatec,
Inc.
• Endoscopy competitors: Smith &
Nephew Endoscopy, ConMed
Linvatec, Inc., Arthrex, Inc., Karl Storz
GmbH & Co. and Olympus Optical
Co. Ltd.
• Recent Transactions:
• Acquired CHG Hospital Beds,
Inc. which manufactures and
markets low-height hospital
beds and accessories in Canada
• Acquired Berchtold Holding, AG
which expands the global
endoscopy exposure
• $1.741B in 2014 sales (18% of total)
• Recently received clearance to market
proprietary Stentriever Technology, as
well as innovative clot remover Trevo
ProVEU Retriever
• Makes up only about 18% of revenue
stream
• Neurotechnology competitors:
Medtronic, Covidien, Johnson &
Johnson
• Spine competitors: Medtronic,
Sofamor Danek, Inc., DePuy Synthes,
Nuvasive, Inc., Globus Medical, Inc.
Orthopedic Implants MedSurg Equipment Neurotechnology & Spine
Growth by Segment
• Stryker’s growth is primarily dependent on a diverse product offering across three main sectors. Stryker’s revenue has increased in
each of these categories over the last three years.
$-
$1,000
$2,000
$3,000
$4,000
$5,000
2012 2013 2014
Orthopaedics MedSurg Neurotechnology and Spine
Sources: Company Filings, Capital IQ
13. SIBC
Historical Stock Chart
13
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
3/29/2010 9/29/2010 3/29/2011 9/29/2011 3/29/2012 9/29/2012 3/29/2013 9/29/2013 3/29/2014 9/29/2014
SYK IHI S&P 500
12/30/13: FDA clearance
received for Neptune 2
Waste Mgt System,
estimated to increase
revenue growth by 70 bp in
upcoming year.
10/19/10: Acquisition of
Boston Scientific (BSX)
neurovascular business,
with proceeds to be
invested in expanding
portfolio.
2/9/12: CEO Stephen
MacMillan resigns due
to family reasons. His
exit is “not good news”
reports Collins Stewart.
3/3/15: Board of Directors
authorizes new $2B share
repurchase, bringing total
buyback amount to
$2.583B.
9/25/13: Announces
$1.65B acquisition of
Mako Surgical (MAKO)
for $30/share.
SYK suffers in Aug 2011
market fall, a result of
Europeans sovereign debt
crises and a wave of US
credit downgrades.
• Steady revenue growth, a string of strategic acquisitions, and a general uptrend in the medical device market have contributed to Stryker’s
steady returns over recent years.
Source: Capital IQ, Seeking Alpha, Morningstar Direct
14. SIBC14
Agenda
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
15. SIBC
Comparable Companies
15
Best Comparable Companies
Medtronic and Abbott Laboratories
• Focus on medical device development and
manufacturing
• Aim to serve similar market with product lines
• Similar price range of products
Implied Valuation
EV/Revenue: 3.4x-3.8x (2015)
3.1x-3.5x (2016)
EV/EBITDA: 13.0x-16.2x (2015)
11.3x-13.2 (2016)
• Stryker falls below average on EBITDA and P/E multiples as a result of a lack of continuity in its revenue segments
Stryker Corporation
Trading Comparables
Trading Multiples Price on EV/Revenue EV/EBITDA P/E Ratio
Company 4/15/2015 Market Cap Enterprise Value LTM 2015E 2016E LTM 2015E 2016E LTM 2015E 2016E
Medtronic PLC $77.91 $110,227.0 $108,019.9 6.2x 3.8x 3.8x 18.9x 19.2x 10.9x 25.6x 18.4x 18.6x
Abbott Laboratories $46.83 $70,589.0 $70,590.0 3.7x 3.5x 3.3x 16.8x 14.6x 13.4x 41.8x 21.6x 19.7x
Boston Scientific, Inc $18.04 $23,723.0 $27,549.6 3.8x 3.7x 3.5x 16.4x 14.4x 13.3x 22.4x 20.0x 17.6x
Zimmer Holdings, Inc $115.62 $19,963.0 $19,975.7 4.2x 4.3x 4.1x 11.1x 10.7x 10.0x 28.0x 18.4x 17.2x
St. Jude Medical Inc $68.55 $18,513.0 $18,437.6 3.7x 3.8x 3.6x 11.9x 12.2x 11.4x 19.0x 16.6x 15.1x
Intuitive Surgical Inc $533.71 $18,119.0 $17,084.0 8.1x 7.3x 6.6x 24.4x 18.0x 16.3x 44.8x 28.6x 25.3x
Smith and Nephew PLC $34.47 $16,300.0 $16,763.0 3.8x 3.5x 3.4x 13.4x 11.8x 10.9x 30.5x 19.8x 17.9x
Edwards Lifesciences Corp $141.28 $15,494.0 $14,654.0 6.3x 6.1x 7.7x 26.0x 21.9x 20.1x 19.2x 34.1x 30.7x
Varian Medical Systems $94.58 $9,380.0 $8,934.0 2.9x 2.8x 2.6x 13.6x 13.1x 12.1x 24.5x 21.8x 19.5x
Mean 119.7 33,590 33,556 4.7x 4.3x 4.3x 16.9x 15.1x 13.2x 28.4x 22.2x 20.2x
Median 77.4 18,513 18,438 3.8x 3.8x 3.6x 16.4x 14.4x 12.1x 25.6x 20.0x 18.6x
Min 17.0 9,380 8,934 2.9x 2.8x 2.6x 11.1x 10.7x 10.0x 19.0x 16.6x 15.1x
Max 497.3 110,227 108,020 8.1x 7.3x 7.7x 26.0x 21.9x 20.1x 44.8x 34.1x 30.7x
Stryker 92.29 37,078.10 34,051 3.5x 3.41x 3.24x 13.1x 12.94x 12.06x 69.1x 18.51x 16.85x
Source: Capital IQ
16. SIBC
Precedent Transactions
16
Implied
Enterprise
Implied Implied Implied
Date Announced Target/Issuer Buyer
Transaction
Status
Target Description
Transaction
Value
EV/EBITDA EV/EBIT Premium
10/5/2014
CareFusion
Corporation
The VanGuard Group,
Inc.
Closed
Sells medical devices that
reduce medication errors
and prevent health care-
associated infections
$12,384.40 13.2x 17.7x 25.6%
4/24/2014 Biomet Incorporated Zimmer Holdings Pending
Medical device
manufacturer that sells
reconstructive products
for orthopedic surgery
$13,350.00 14.9x 33.1x NV
6/15/2014 Covidien Ltd. Medtronic plc. Closed
Manufactures and sells a
diverse range of medical
device & supply products
to support surgery
$46,235.92 17.1x 21.7x 29.1%
2/3/2014
ArthroCare
Corporation
Smith & Nephew plc. Closed
Sells medical devices
focused on soft tissue
repair and ablation
technology in joints and
spines
$1,181.82 23.9x 34.8x 5.6%
4/27/2011 Synthes Inc Johnson & Johnson Closed
Medical device
manufacturer that sells
orthopedic trauma
devices for internal and
external fixation
$18,040.18 11.4x 14.1x 11.3%
Premium Implied 20%
• Recent previous transactions suggest an implied premium of around 20% is necessary to make a realistic offer for SYK’s equity stake
Source: Capital IQ, Bloomberg
17. SIBC
Discounted Cash Flow Model Cont’d
Source: CapIQ, Bloomberg, Company Filings
Assumptions
Market Risk Premium (Rm - Rf) 5.5%
Multiplied by: SYK Beta 1.03
Adjusted Market Risk Premium 5.7%
Add: Risk-Free Rate of Return (Rf)(1) 1.9%
Cost of Equity 7.6%
Multiply by: Subject Company E/(D+E) 90.0%
Cost of Equity Portion 6.8%
Subject Company Assumed Cost of Debt 3.9%
Subject Company Tax Rate 19.8%
After-tax Cost of Debt 3.1%
Multiply by: Subject Company D/(D+E) 10.0%
Weighted Average Cost of Debt Portion 0.3%
WACC 7.1%
Enterprise Value
Cumulative Present Value of FCF $6,916
Terminal Value
Terminal Year EBITDA (2019E) $3,033
Exit Multiple 13
Terminal Value (Exit Multiple) $39,424
Terminal Value (Perpetuity of 1.5%) $32,834
Average Terminal Value $36,129
Present Value of Terminal Value $26,483
% of Enterprise Value 79%
Enterprise Value $33,398
Exit Multiple
$89.93 12 12.5 13 13.5 14
5.6% $ 104.13 $ 105.68 $ 107.23 $ 108.77 $ 110.32
WACC 6.1% $ 97.37 $ 98.88 $ 100.40 $ 101.91 $ 103.43
6.6% $ 91.77 $ 93.25 $ 94.73 $ 96.22 $ 97.70
7.1% $ 87.03 $ 88.48 $ 89.93 $ 91.38 $ 92.83
7.6% $ 82.94 $ 84.36 $ 85.78 $ 87.21 $ 88.63
8.1% $ 79.37 $ 80.76 $ 82.15 $ 83.54 $ 84.94
8.6% $ 76.20 $ 77.56 $ 78.93 $ 80.29 $ 81.65
Implied Equity and Share Price
Enterprise Value $33,398
Less: Total Debt 3973
Less: Preferred Securities 0
Less: Noncontrolling Interest 0
Plus: Cash and Cash Equivalents 5000
Implied Equity Value $34,425
Fully Diluted Share Outstanding 382.8
Implied Share Price $89.93
Current Overvaluation 3.10%
Present Value of Free Cash Flow
2015 2016 2017 2018 2019
1360 1419 1426 1371 1339
17
19. SIBC19
Agenda
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
20. SIBC
25
27
29
31
33
35
37
39
41
Apr-14 Jul-14 Oct-14 Jan-15
Target: Smith & Nephew Plc
Management
A Focus on Orthopaedics
• Advanced Surgical Devices (ASD)
• Orthopaedic Reconstruction, Trauma & Extremities, Sports
Medicine Joint Repair, Arthroscopy, Other ASD
• Advanced Wound Management (AWM)
• Advanced Wound Care, Advanced Wound Devices, and
Advanced Wound Bioactives
• Smith & Nephew (SNN) is a global orthopedics company that develops surgical products to meet needs in advanced medical
devices and advanced wound management markets through calculated R&D and strategic acquisitions.
Key Statistics (2014)
Share Price (4/10/15) $34.98
Market Cap (4/12/15) $15.63B
Enterprise Value (4/12/15) $17.25B
Revenue $4.62B
Adjusted EBITDA $1.31B
EBITDA Margin 32.15%
Adjusted EPS $1.11
Net Debt $1.61B
52 Week Range: $28.87 - $40.38
Median Share Price: $34.18
SNN
$34.98
Roberto Quarta, 65
Chairman of the Board – 1 year
Olivier Bohuon, 56
CEO – 4 years
Julie Brown, 52
CFO – 2 years
Gordon Howe, 51
Pres. of Global
Operations – 8 years
• Trades as SN on the London Stock Exchange (SNN on NYSE)
• Founded in Hull, UK in 1856. Headquartered in London, UK
• Over 14,000 employees worldwide
20Source: Capital IQ, Bloomberg, Company Filings
21. SIBC
Source: Company Filings
SNN: Product Developments and Industry Presence
Strategic Priorities
• Smith & Nephew’s product development and sales efforts aim to grow market share within four primary sectors through
responding to industry needs and focusing on innovation, efficiencies, and strategic operational expansion.
S&N
11%
Stryker
19%
Zimmer
23%
DePuy
Synthes
21%
Other
14%
Biomet
12%
Hip & Knee Implants
S&N
10%
Stryker
22%
Biomet
6%
Zimmer
6%
Other
9%
DePuy
Synthes
47%
Trauma &Extremities
S&N
20%
MoInlycke
12%
Convatec
8%
Other
38%
KCI
22%
Advanced Wound Management
S&N
24%
Stryker
11%
DePuy Mitek
15%
Arthrex
29%
Linvatec
5%
Other
16%
Sports Medicine
• Segment Size: $14B
• 2014 Growth: +3%
• Segment Size: $4.9B
• 2014 Growth: +7%
• Segment Size: $7B
• 2014 Growth: +4%
• Segment Size: $4.6B
• 2014 Growth: +6%
• Established Markets – expand existing positions through
innovation and increased efficiencies
• Emerging & International Markets – build strong customer
relationships and introduce targeted products to earn
emerging and international market share
• Organic Growth through Innovation – invest in R&D to
remain on the front end of clinical and cost boundaries
• Improve Operating Model – pursue maximum efficiency by
streamlining operations and management, removing
duplications, and commercializing globally
• Supplement Growth with Acquisitions – grow by acquiring
technologies, manufacturing, and distribution in
complementary or higher growth segments
Selected Initiatives
• Capitalize on forecasted growth in emerging markets by developing
products like PICO – a portable, single use wound healing product in
the middle economic tier. (Sep 2014)
• Optimize global manufacturing footprint by
expanding operations in Suzhou, China, including a
construction effort that doubled production capacity
to over 100 million wound dressings per year. (June
2014)
PICO: a single use
Negative Pressure
Wound Therapy Device
• Provide hospitals with added value and efficiency
through Syncera, an orthopedic supply chain model that
streamlines inventory management, training, and
product sourcing for hip, knee, and other joint
procedures.
21
22. SIBCSource: Company Filings
Potential Benefits and Risks
Core Competencies
Strong Partnership
Agreements
Product
Development
Strategic
Acquisitions
Geographic
Expansion
Innovative R&D
Pipeline
Leader in
Orthopedics
Risks Opportunities
• Smith & Nephew’s opportunities and competencies outweigh the potential risks presented within the acquisition.
• Unsuccessful product
releases or unrealized
synergies
• Transitional risk and
potential agency issues
• Market risks and challenging
competitive environment
• Regulatory restrictions
• Exposure to faulty product
design and subsequent
recalls, write-downs, or
litigation
OpportunitiesRisks
• Strengthened market share
in orthopedic restructuring
• High growth opportunities in
Advanced Wound
Management and Sports
Medicine
• Geographic expansion into
European and emerging
markets
• Source of innovation with a
track record of contributing
significant technologies
• Jump in share price for
current stockholders
• Elimination of current
vulnerability that is due to
relatively small size
• Improved distribution
channels
• Greater resources for
innovative R&D process
• Recognition of value, fueled
by strong positioning and
manageable COGS
• Change of management or
switch of business model
presents risks
• Increased regulation and/or
reduced flexibility in product
development
Including strategic
partnership with
Osiris Therapeutics
Extensive
resources for R&D
and marketing
Available capital
and proven history
of success
Unique presence in
Europe and
emerging markets
Impressive history of
medical technology
contributions
Competitive supply
and distribution
presence
22
23. SIBCSource: Company Filings
Strategic Rationale
Cost Synergies
R&D and Marketing Emerging Markets
$130 Million in Total Estimated Savings
• The acquisition creates value through cost synergies that include reductions in R&D and marketing, along with increased emerging
market exposure
Merger Timeline
June 2015 FY 2016
• Begin the year as
“New” Stryker
• Initiate cost savings
and other synergies
• Fully realize all
synergies
• Complete
integration with few
signs of merger
FY 2017Summer 2015 December 2015
• Initial Offer and
discussions with
Smith & Nephew
• Begin looking at
feasibility (i.e.
transaction details,
regulatory hurdles)
• Receive
Shareholder
approvals
• Complete due
diligence and
adequate evaluation
of partner company
• Execute share
exchange and
amendments to
existing debentures
• Begin trading as
one company
• With Smith & Nephew, Stryker will hold almost one-third of the hip market
and over 40% of the knee market
• Optimized efficiency and added local and emerging market exposure will
allow for more competitive positioning
• Smith & Nephew’s track
record of innovation and
accelerated product
development pipeline will be
enhanced by Stryker’s
extensive resources in
manufacturing and distribution
• Smith and Nephew’s
international position will
increase exposure, especially
in emerging markets
• Currently there is a shift in
orthopedic growth potential
away from developed markets
$0
$20
$40
$60
$80
$100
$120
$140
2015E 2016E 2017Emm
23
24. SIBC24
Agenda
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
25. SIBC
Comparable Companies
25
Smith & Nephew
Trading Comparables
Trading Multiples Price on EV/Revenue EV/EBITDA P/E Ratio
Company 4/15/2015 Market Cap Enterprise Value LTM 2015E 2016E LTM 2015E 2016E LTM 2015E 2016E
Medtronic PLC $77.91 $110,227.0 $108,019.9 6.2x 3.8x 3.8x 18.9x 19.2x 10.9x 25.6x 18.4x 18.6x
Abbott Laboratories $46.83 $70,589.0 $70,590.0 3.7x 3.5x 3.3x 16.8x 14.6x 13.4x 41.8x 21.6x 19.7x
Stryker $92.29 $37,078.1 $34,051.1 3.5x 3.4x 3.2x 13.1x 12.9x 12.1x 69.1x 18.5x 16.9x
Boston Scientific, Inc $115.62 $23,723.0 $27,549.6 3.8x 3.7x 3.5x 16.4x 14.4x 13.3x 22.4x 20.0x 17.6x
Zimmer Holdings, Inc $115.62 $19,963.0 $19,975.7 4.2x 4.3x 4.1x 11.1x 10.7x 10.0x 28.0x 18.4x 17.2x
St. Jude Medical Inc $65.55 $18,513.0 $18,437.6 3.7x 3.8x 3.6x 11.9x 12.2x 11.4x 19.0x 16.6x 15.1x
Coloplast A/S $75.79 $17,322.1 $17,284.6 9.6x 8.6x 7.9x 26.2x 23.0x 20.7x 34.7x 34.7x 29.0x
Edwards Lifesciences Corp
$141.58 $15,494.0 $14,654.0 6.3x 6.1x 7.7x 26.0x 21.9x 20.1x 19.2x 34.1x 30.7x
Varian Medical Systems
$94.58 $9,380.0 $8,934.0 2.9x 2.8x 2.6x 13.6x 13.1x 12.1x 24.5x 21.8x 19.5x
Mean 91.8 35,810 35,500 5.1x 4.6x 4.6x 17.6x 16.1x 14.0x 26.9x 23.2x 20.9x
Median 92.3 19,963 19,976 4.0x 3.8x 3.7x 16.6x 14.5x 12.7x 25.1x 20.8x 19.0x
Min 46.8 9,380 8,934 2.9x 2.8x 2.6x 11.1x 10.7x 10.0x 19.0x 16.6x 15.1x
Max 141.6 110,227 108,020 9.6x 8.6x 7.9x 26.2x 23.0x 20.7x 41.8x 34.7x 30.7x
Smith and Nephew PLC $34.5 $16,300.0 $16,763.0 3.8x 3.5x 3.4x 13.4x 11.8x 10.9x 30.5x 19.8x 17.9x
Coloplast A/S and Abbot Laboratories
• Focus on medical device development and
manufacturing
• Coloplast incorporated in Denmark
• Similar business strategies
Implied Valuation
EV/Revenue: 3.7x-4.0x (2015)
3.8x-4.1x (2016)
EV/EBITDA: 14.5x-16.1x (2015)
12.7x-14.0 (2016)
Source: Capital IQ
Implied Valuation
• Given the similarities between Stryker and Smith & Nephew, the valuation implied is relatively similar to the past analysis
26. SIBC
SNN - Discounted Cash Flow Model Cont.
• Expect strong ability to maintain current revenue through FY2019 due to easily manageable cost of goods sold
Source: Capital IQ, Bloomberg, Company Filings 26
Assumptions
Market Risk Premium (Rm - Rf) 5.5%
Multiplied by: SNN Beta 1.07
Adjusted Market Risk Premium 5.9%
Add: Risk-Free Rate of Return (Rf)(1) 1.9%
Cost of Equity 7.8%
Multiply by: Subject Company E/(D+E) 93.1%
Cost of Equity Portion 7.3%
Subject Company Assumed Cost of Debt 4.0%
Subject Company Tax Rate 33.7%
After-tax Cost of Debt 2.7%
Multiply by: Subject Company D/(D+E) 6.9%
Weighted Average Cost of Debt Portion 0.2%
WACC 7.5%
Enterprise Value
Cumulative Present Value of FCF $5,285
Terminal Value
Terminal Year EBITDA (2019E) $1,174
Exit Multiple 13
Terminal Value (Exit Multiple) $15,261
Terminal Value (Perpetuity of 1.5%) $22,940
Average Terminal Value $19,101
Present Value of Terminal Value $13,820
% of Enterprise Value 72%
Enterprise Value $19,105
Implied Equity and Share Price
Enterprise Value $19,105
Less: Total Debt 1142
Less: Preferred Securities 0
Less: Noncontrolling Interst 0
Plus: Cash and Cash Equivalents 93
Implied Equity Value $18,056
Fully Diluted Share Outstanding 447
Implied Share Price $40.39
Current Overvaluation (Undervaluation) -14.8%
Present Value of Free Cash Flow
2015 2016 2017 2018 2019
1121 1128 1059 1004 974
Exit Multiple
40 12 12.5 13 13.5 14
5.96% $ 48.44 $ 48.95 $ 49.46 $ 49.96 $ 50.47
6.46% $ 44.89 $ 45.38 $ 45.88 $ 46.37 $ 46.87
WACC 6.96% $ 41.93 $ 42.42 $ 42.90 $ 43.39 $ 43.87
7.46% $ 39.43 $ 39.90 $ 40.38 $ 40.85 $ 41.33
7.96% $ 37.27 $ 37.74 $ 38.20 $ 38.67 $ 39.13
8.46% $ 35.39 $ 35.84 $ 36.30 $ 36.75 $ 37.21
8.96% $ 33.72 $ 34.17 $ 34.62 $ 35.06 $ 35.51
28. SIBC
Accretion/Dilution
28
Stryker Company Statistics
Share Price $ 92.72
Fully Diluted Shares Outstanding 382.8
Maximum Debt Level (xEBITDA) 5.0x
Current Debt Level (xEBITDA) 1.6x
Maximum Debt $ 12,665.44
Current Long Term Debt $ 3,973.00
Potential New Debt $ 8,692.44
10-Year Note Default Spread (bps) 200
10-Year Treasury Yield 1.90%
Term Loan B Cost of Debt 3.90%
Current Cash & Equivalents $ 5,000.00
Necessary Cash & Equivalents $ 2,000.00
Available Cash & Equivalents $ 3,000.00
Smith & Nephew Company Statistics
Share Price $ 34.41
Fully Diluted Shares Outstanding (M) 447
Deal Statistics
Form of Transaction Stock Purchase
Premium Offered 20%
Offer Value For Equity $ 18,457.52
Repayment of SNN Debt $ 1,142.00
SNN Cash Available $ 93.00
Total Needed Financing $ 19,506.52
Cash Portion of Deal $ 11,692.44
Stock Portion of Deal $ 7,814.09
New SYK Shares Issued 84.28
Fully Diluted SYK Shares Outstanding 467.08
SNN % Ownership of Combined Firm 18.04%
Merged Firm Debt/EBITDA 3.37
Recomputed Stryker WACC 6.58%
Target Cost Synergies (% of COGS) 10%
First Year Synergy Realization 20%
Second Year Synergy Realization 50%
**Transaction Expenses are not included in Accretion/Dilution
because they are nonrecurring items.**
Source: Capital IQ, Bloomberg, Company Filings
30. SIBC
Accretion/Dilution
30
Adjustments to Net Income
Pre-Tax Impact of new debt interest expense $ 339.01 $ 302.60 $ 262.48
Pre-Tax impact of additional depreciation & amortization $ 100.00 $ 100.00 $ 100.00
Pre-Tax impact of synergies $ 24.11 $ 62.72 $ 130.38
Pre-Tax savings from debt retirement $ 45.68 $ 45.68 $ 45.68
Pre-Tax opportunity cost of cash used $ 117.00 $ 117.00 $ 117.00
Total Pre-Tax Impact $ (486.21) $ (411.20) $ (303.42)
After-Tax Impact $ (360.95) $ (317.20) $ (233.29)
Proforma Fully Diluted Shares 467.08 467.08 467.08
Proforma Net Income $ 1,880.53 $ 2,395.00 $ 2,772.34
Proforma EPS $ 4.03 $ 5.13 $ 5.94
Stryker Stand-alone EPS $ 4.88 $ 5.31 $ 5.73
Accretion/Dilution -17% -3% 4%
Source: Capital IQ, Bloomberg, Company Filings
• While Stryker’s acquisition of Smith & Nephew will initially be dilutive, a further outlook will show 70% of its cost synergies
realized in the first two years that result in it becoming accretive in the third year.
31. SIBC
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
31
Agenda
32. SIBC
Issuance and Buybacks
32
Pros:
• No repayment (including interest
payments)
• Accessible source of funds
• Flexibility in use of capital
Cons:
• Dilution of current stockholders’
stake
• Potential conflicts of interests
with shareholders
Pros:
• No dilution of equity or EPS
• SYK has A+ credit rating
• Low risk of default on debt
Cons:
• Coupon payments cut into cash
flows and could hurt profitability
• Trade at a discount to firms with
lower debt
• Possibly restrictive debt covenants
Pros:
• Reduce dilution and return
value to SYK
• Potential tax benefits
• Enhance control over company
Cons:
• Increases risk of default
• Current high cost of equity
• Possibly restrictive covenants
In order for Stryker to continue to grow its revenue and expand its
brand, investment is needed in physical capital and the adoption of
technological improvement.
Invest in organic growth
through new product
development
Expand corporate
infrastructure
internationally, focusing
on European and Asian
markets
Defend market share
through acquisitions of
new companies and
technology
Issuance of Equity Issuance of Debt Share Buyback
Opportunities to Invest Capital for GrowthGrowth Strategy
•Commit high amounts of capital to internal R&D
and strategic growth
Expand market share
•Acquisition will bolster innovation and contribute
valuable operational efficiencies
Acquisitions
•A focus on international expansion will allow
Stryker to improve brand awareness
Geographic Expansion
Source: Company filings, S & P
33. SIBC
Recent Equity Issues
33
Business Summary
Transaction
Features
Issue Details
Offer Date PPS Amount (mm)
Market Receptiveness
Envision
Healthcare
Holdings, Inc
(NYSE: EVHC)
• Offers an array of healthcare
services to patients, hospitals,
and healthcare systems
• 27.5 million shares offered
• Holding company that operates
a diversified portfolio of niche
healthcare companies
Secondary
Offering
07/10/14 $34.00 $935.0
• Opened at $34.39, closed
at $34.61
• Stock dropped over 8%
starting 06/25/14 in
anticipation of the offering
PRA Health
Science
(NASDAQ:
PRAH)
• Leading pharmaceutical and
biotechnology company
• Offered 17 million shares at an
initial price of $18
• Backed by private equity firm
KKR who decided not to sell
their stake
IPO 11/13/14 $18.00 $126.0
• Price rose to $18.60 by
end of opening day
• Investors believed it was
underpriced
• Stock rose considerably to
a current price of $28.71
Avinger, Inc
(NASDAQ:
AVGR)
• Bay Area based medical device
company focused on the
manufacturing of life science
equipment
• Specialize in catheters and
precision vascular equipment
• Listed 5 million shares with a
potential for another .75 million
IPO 01/30/15 $13.00 $65.0
• Priced at middle range of
$12 - $14
• Closed at $13.50 on
opening day, but dropped
consistently over the
following weeks
• Price currently at $10.98
Abbott
Laboratories
(NYSE: ABT)
• Pharmaceuticals and health
care products company
• Board of directors authorized
new stock repurchase program
of up to $3 billion
• Has returned $35 billion in cash
to shareholders since 2004 in
the form of dividends and share
repurchases
Share
Repurchases
09/11/14 $42.55 $3,000.0
• Price of Abbot shares
remained steady, with
only a $1 increase over
the week of the
announcement
• Abbot maintained a strong
rating among investors,
but experienced only
industry average growth
since its IPO
• In general, recent initial public offerings and secondary equity offerings have gained modest to low investor confidence
Sources: The Motley Fool, Capital IQ, Market Watch, Yahoo Finance
34. SIBC
Stryker: Comparable Companies – Debt Analysis
34
Stryker Corporation
Trading Comparables
Trading Multiples Price on Credit Statistics Operating Statistics
Company 4/15/2015
Enterprise
Value Total Debt/Equity
Net
Debt/EBITDA
EBITDA/Interest
Expense
EBITDA
Margin
Unlevered Free Cash Flow
Margin
1 yr Sales
Growth
Credit
Rating (S&P)
Medtronic PLC $77.91 $108,019.9 61.4% NM 12.6x 33.4% 25.2% 2.0% A
Abbott Laboratories $46.83 $70,590.0 36.3% 0.8x 29.3x 21.7% 12.8% 3.0% A+
Boston Scientific, Inc $18.04 $27,549.6 66.0% 2.2x 7.8x 22.9% 21.4% 3.4% BBB-
Zimmer Holdings, Inc $115.62 $19,975.7 22.8% 0.2x 28.3x 38.3% 15.1% 1.1% A-
St. Jude Medical Inc $68.55 $18,437.6 91.1% 1.4x 20.7x 31.3% 16.2% 2.2% A
Smith and Nephew PLC $34.47 $16,763.0 42.2% 1.2x 37.5x 28.5% 11.2% 6.1% -
Edwards Lifesciences Corp $141.28 $14,654.0 27.3% NM 32.8x 24.3% 15.3% 13.6% BBB-
Varian Medical Systems $94.58 $8,934.0 32.4% NM 90.0x 21.4% 13.1% 3.4% -
Mean 72.5 35,615 47% 1.2x 32.4x 28% 16% 4% -
Median 71.6 19,207 39% 1.2x 28.8x 26% 15% 3% -
Min 17.0 8,934 23% 0.2x 7.8x 21% 11% 1% -
Max 143.7 108,020 91% 2.2x 90.0x 38% 25% 14% -
Stryker $92.29 $34,051 46% 1.1x 23.0x 26.9% 24.8% 7.2% A+
• Stryker’s similar debt/equity and debt/EBITDA margins suggest it is in line with the industry, but its strong credit rating, sales
growth, and unlevered free cash flow indicate its stronger debt capacity
Sources: Capital IQ
35. SIBC35
Leveraged Buyout Analysis
2015E 2016E 2017E 2018E 2019E 2020E
Debt/EBITDA 1.71x 7.50x 6.45x 5.41x 4.54x 3.67x
EBITDA/Interest NM 1.73x 1.82x 2.11x 2.43x 2.85x
Debt/FCF 2.16x 9.37x 8.43x 7.06x 5.91x 4.77x
Sources And Uses of Funds
Sources Uses
Amount X of EBITDA Amount % of Total
Equity $27,633.25 Equity Purchase Price $ 42,150.87 90.50%
Cash 5,000.00 Refinancing Debt 3973 8.50%
Revolver 0.00 Financing Fees (.5%) 19.87
Term Loan B 9,288.00 4.0x Advisory Fees (1%) 421.51
Unsecured Bonds 4,644.00 2.0x
Total Sources $46,565.25 Total Uses $ 46,565.25
Transaction Summary
Current Stock Price $ 91.76
Purchase Price Per Share $ 110.11
Buyout Premium 20%
Shares Outstanding $ 382.80
Equity Value $42,150.90
Plus: Existing Debt $ 3,973.00
Less: Existing Cash $ (5,000.00)
Total Enterprise Value $41,123.90
TEV as a Multiple of:
2015E EBITDA 17.7x
2016E EBITDA 16.9x
• The company’s high trading multiple and high equity requirement will most likely deter many potential sponsors from acquiringStryker
36. SIBC
Leveraged Buyout Risks & Rationale
36
Financial:
• Favorable debt environment with increasing US-Euro
yield and low interest rates
• Strong company revenues would support favorable
borrowing and financing terms
Strategic:
• LBO structuring ensures motivation and efficiency from
management, and brings added expertise from PE firms
• Delivers value to existing shareholders
• Going private would allow for added flexibility and a
longer timeline for expanding operations in Europe and
Asia
• Not subject to quarterly earnings pressure
• Entering new markets and expanding brand
recognition requires time to realize return
• Revenue growth within primary sectors, as well as
changing product mix
• Stable earnings in U.S. markets, and increasing
revenues and brand recognition across new geographic
targets
• Cash outflows and boosted market share from
acquisitions
• Revenues from new product offerings
Reasons for Transaction Risks
Performance Signs to Monitor
• Development in new markets and products could
encounter roadblocks or miss expectations
• This would negatively impact revenues,
turnaround potential, and investment holding
period
• Unrealized growth will significantly harm
borrowing potential due to existing high
leverage
• High leverage may negatively influence SYK’s ability
to expand through acquisitions
• Medical equipment industry is unpredictable in its
susceptibility to new innovations across many
sectors
• Unsure recovery in Europe, plateauing growth in
emerging market, or reactions to QE withdrawal
present macroeconomic risks to bootstrapping
• High current share price represents added risk
• Steep trading multiple along with the large size
of the deal contribute significant risk to the
deal
Potential Sponsors:
• SYK’s high trading multiple along with the transaction’s large size contribute to the significant risk of an LBO
37. SIBC
Final Recommendation
37
Investment Thesis: An acquisition of Smith & Nephew will allow Stryker to remain competitive as the medical device industry
trends toward consolidation. SNN is an attractive target due to its stable cash flows, fundamental model, and unique positioning.
Its innovative focus on orthopedics make it compatible with Stryker’s current strategy.
Market: Medical Devices
Realizable Value:
Stryker’s global distribution and product variety,
overvaluation, and growing regulatory landscape, coupled
with Smith & Nephew’s innovative presence in orthopedics
presents unique potential within both established and higher
growth markets.
Benefits:
Steady Cash Flows, Future Growth, Cost Synergies, Brand
Recognition, Distribution Channels, Global Presence,
Worldwide Leader in Lucrative Market
Stryker
• Regulatory restrictions (Healthcare Reform)
• Competitive industry characterized by large players and
innovative disruption
• Transitional risks in acquisition deal
• Unrecognized synergies
Smith & Nephew
• Environmental risks in emerging markets
• Possibility of faulty product design or unsuccessful
development
Final Recommendation: Stryker should acquire Smith & Nephew using a combination of new debt and equity issuances.
Key Value Proposition Risks & Threats
38. SIBC
Agenda
38
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
Mark
SNN is not trading at 17 dollars- needs to be fixed especially because we are acquiring them. Use Bloomberg, not capiq
DONE
Jimmy
DONE
Jimmy
Maria
DONE
Nate
DONE
Nate - 2
Optimize global manufacturing footprint by expanding operations in Suzhou, China, including a construction effort that doubled production capacity to over 100 million wound dressing per year. (June 2014)
- Construction was on time, on budget
Priorities:
Established Markets
These are Australia, Canada, Europe, Japan, New Zealand, and the U.S.
Flat growth in developed mkts, despite a 15% growth in Advanced Wound Bioactives and an upward trend through the latter 2 quarters of 2014
Overall, established markets continue to present a challenging environment
Responding to this by realigning business models and focusing on efficiency
This is a trend in established healthcare markets: healthcare clinics and hospitals are demanding lower prices, which is forcing companies to create efficiencies to maintain margins. A merger with SYK brings significant potential to expand efficiencies – from SNN’s perspective, particularly in the U.S. in the Advanced Wound Management segment (through distribution) and other segments (through production) – and thus bolster performance within established markets.
R&D - $235m, or 5.1% of revenue. Track record of capturing market share through innovation. Products in pipeline include:
Acquisitions
ArthroCare
SNN plays in four major sectors, with significant market share in each. There largest concentration is in Advanced Wound Management (roughly $1.4B in business)
Nate - 3
Mitch
MUST BE FIXED
Reductions in general & administrative expenses, R&D consolidation, and sales & marketing
Fewer third party manufacturing facilities
Efficiencies in purchasing & distributing raw materials
Eliminate failing R&D programs to focus on strategic acquisitions of smaller companies rather than creating new products
Closing of some manufacturing and R&D facilities
Redundant roles eliminated (Corporate, researchers, lab workers, lower-level management)
Nate
Maria
DONE
DONE
DONE
DONE
Whoever wants this can take it, but we need someone to do an outlook under each option and determine essentially what each one would mean to Stryker. So, what would the implications of adding more debt be, what would happen to Stryker if they continue to repurchase shares, etc.
Need Outlook
DONE
Mark
DONE
Mitch
DONE
Basically: the Value Proposition:
Develop in emerging markets
Industry trend toward consolidation
Establish definitive presence in orthopedics; along with SNN’s appropriate size which offers potential for value realization
Move into Europe: easier regulations, faster product pipeline; Stryker has already begun trend toward Europe (Netherlands in 2014)