SlideShare ist ein Scribd-Unternehmen logo
1 von 40
University of Notre Dame – Goldman Sachs
Team Wolfpack
Project: Stryker
Team: James Ganas, Mark Grasberger, Nathaniel Marti, Mitchell Revich, Maria Rolon
Leader: Stephen Schafer
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
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.
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
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
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
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
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.
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 $41 Billion by 2019
Global Market Cap
•Expected CAGR of 4.9% (2013 – 2019)
Growth
•Sports Medicine, Trauma, orthopedic knee devices,
orthopedic hip, and orthopedic consumables
Main Areas of Development
Favorable Secular Demographic Trends
• The Orthopedics Market faces a stable and growing demand driven by an aging population. This includes a rise in
osteoporosis-related fractures and musculoskeletal diagnoses.
Key Market Participants
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dislocations Infective
Arthritis
Back
Problems
Rheumatoid
Arthritis
Sprains/
Strains
Osteoarthritis Osteoperosis Hip Fracture
% of Musculoskeletal Diagnoses Which are for
Individuals 65 or Older
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Japan Italy France Germany Australia UK Mexico USA
Global Obesity Growth
1990 2000 2010 2020E
Sources: IBIS World, Global Market for Medical Devices, 5th Ed.
SIBC10
Agenda
I. Macroeconomic Overview
II. Industry Overview
III. Company Overview: Stryker
IV. Valuation: Stryker
V. Target Overview: Smith & Nephew
VI. Valuation: Smith & Nephew
VII. Strategic Alternatives
VIII. Appendix
SIBC
Company Overview
11
Overview: Stryker designs and manufactures medical technologies.
Their products include implants used in joint replacement, surgical
equipment and surgical navigation systems, patient handling and
emergency medical equipment, neurosurgical and neurovascular
devices, and other medical device products.
Orthopedics
Implants used in joint
replacements and
trauma/extremities
surgeries
MedSurg
Instruments,
Endoscopy, Medical,
Sustainability, and
other medical device
products
Neurotechnology
and Spine
Neurosurgical and
neurovascular
devices
Founded: 1941
Headquarters: Kalamazoo, Michigan
Employees: 22,000+ worldwide
Key Executives:
Kevin A. Lobo, Chairman,
President, & CEO (2011)
Announced Date Target Size ($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
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
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
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
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
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
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
SIBC
Valuation Football Field
$84
$106
$79
$84
$88
$91
$76
$92
$116
$90
$99
$99
$101
$98
$60 $70 $80 $90 $100 $110 $120 $130
DCF Output
20% Implied Premium
11.3x-13.2x 2016 EV/EBITDA
13.0x-16.2x 2015 EV/EBITDA
3.1x-3.5x 2016 EV/Revenue
3.4x-3.8x 2015 EV/Revenue
52 Week Trading Range
DCF Valuation
Precedent Transaction
Comparable Companies
Implied Valuation: $84.92 – $93.32Current Price: $92.29
Trading History
18
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
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
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
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
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
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
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
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
SIBC
Valuation Football Field
$37
$39
$36
$39
$42
$38
$29
$42
$45
$40
$44
$48
$45
$40
$20 $25 $30 $35 $40 $45 $50 $55 $60 $65
DCF Output
20% Implied Premium
12.7x-14x 2016 EV/EBITDA
14.5x-16.1x 2015 EV/EBITDA
3.8x-4.1x 2016 EV/Revenue
3.7x-4.0x 2015 EV/Revenue
52 Week Trading Range
DCF Valuation
Precedent Transaction
Comparable Companies
Implied Valuation: $38.00 - $42.36Current Price: $34.52
Trading History
27
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
SIBC
Accretion/Dilution
29
Combined Income Statements
Millions FY2015 FY2016 FY2017
Total Revenue $ 14,720.92 $ 15,500.13 $ 16,239.93
% growth 5.3% 4.8%
Gross Profit $ 10,124.17 $ 10,694.87 $ 11,209.99
annual growth 5.6% 4.8%
margin % 68.8% 69.0% 69.0%
EBITDA $ 3,530.40 $ 3,757.93 $ 4,008.97
annual growth 6.4% 6.7%
margin % 24.0% 24.2% 24.7%
Less: Depreciation and Amortization $ 382.75 $ 400.28 $ 418.98
% of Revenue 2.6% 2.6% 2.6%
EBIT $ 3,147.66 $ 3,357.65 $ 3,590.00
annual growth 6.7% 6.9%
margin % 21.4% 21.7% 22.1%
Pretax Income $ 3,019.35 $ 3,515.92 $ 3,909.11
Less: Income Tax $ 777.87 $ 803.73 $ 903.48
25.76% 22.86% 23.11%
Net Income $ 2,241.48 $ 2,712.19 $ 3,005.63
Source: Capital IQ, Bloomberg, Company Filings
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.
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
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
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
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
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
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
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
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
SIBC
Stryker - Discounted Cash Flow Model
Source: CapIQ, Bloomberg, Company Filings
Millions FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Total Revenue $ 7,320.00 $ 8,307.00 $ 8,657.00 $ 9,021.00 $ 9,675.00 $ 9,975.92 $ 10,507.13 $ 11,015.93 $ 11,435.80 $ 11,657.50
% growth 13.5% 4.2% 4.2% 7.2% 3.1% 5.3% 4.8% 3.8% 1.9%
Gross Profit $ 5,034.30 $ 5,639.00 $ 5,894.00 $ 6,090.00 $ 6,412.00 $ 6,584.71 $ 6,956.35 $ 7,289.79 $ 7,673.42 $ 7,845.50
annual growth 12.0% 4.5% 3.3% 5.3% 2.7% 5.6% 4.8% 5.3% 2.2%
margin % 68.8% 67.9% 68.1% 67.5% 66.3% 66.0% 66.2% 66.2% 67.1% 67.3%
EBITDA $ 1,925.80 $ 2,093.00 $ 2,209.00 $ 2,248.00 $ 2,414.00 $ 2,533.09 $ 2,712.44 $ 2,931.13 $ 3,045.88 $ 3,032.61
annual growth 8.7% 5.5% 1.8% 7.4% 4.9% 7.1% 8.1% 3.9% -0.4%
margin % 26.3% 25.2% 25.5% 24.9% 25.0% 25.4% 25.8% 26.6% 26.6% 26.0%
Less: Depreciation and Amortization $ 58.20 $ 122.00 $ 123.00 $ 138.00 $ 188.00 $ 149.67 $ 158.56 $ 165.41 $ 157.88 $ 160.61
% of Revenue 0.8% 1.5% 1.4% 1.5% 1.9% 1.5% 1.5% 1.5% 1.4% 1.4%
EBIT $ 1,867.60 $ 1,971.00 $ 2,086.00 $ 2,110.00 $ 2,226.00 $ 2,383.42 $ 2,553.89 $ 2,765.73 $ 2,888.00 $ 2,872.00
annual growth 5.5% 5.8% 1.2% 5.5% 7.1% 7.2% 8.3% 4.4% -0.6%
margin % 25.5% 23.7% 24.1% 23.4% 23.0% 23.9% 24.3% 25.1% 25.3% 24.6%
Pretax Income $ 1,729.60 $ 1,686.00 $ 1,705.00 $ 1,212.00 $ 1,160.00 $ 2,305.35 $ 2,480.37 $ 2,730.11 $ 2,758.50 $ 2,872.00
Less: Income Tax $ 456.20 $ 341.00 $ 407.00 $ 206.00 $ 645.00 $ 438.78 $ 448.26 $ 537.01 $ 581.50 $ 574.00
24.43% 17.30% 19.51% 9.76% 28.98% 19.03% 18.07% 19.67% 21.08% 19.99%
Net Income $ 1,273.40 $ 1,345.00 $ 1,298.00 $ 1,006.00 $ 515.00 $ 1,866.57 $ 2,032.11 $ 2,193.10 $ 2,177.00 $ 2,298.00
Plus: Depreciation and Amortization $ 58.20 $ 122.00 $ 123.00 $ 138.00 $ 188.00 $ 149.67 $ 158.56 $ 165.41 $ 157.88 $ 160.61
Less: Capital Expenditures $ 131.30 $ 182.10 $ 226.00 $ 210.00 $ 195.00 $ 233.00 $ 288.75 $ 298.00 $ 253.69 $ 268.36
Capex % of Depr. & Amor. 225.60% 149.26% 183.74% 152.17% 103.72% 155.68% 182.11% 180.16% 160.69% 167.08%
Less: Increase in Net Working Capital $ 517.30 $ 193.20 $ 415.00 $ (538.00) $ (925.00) $ 375.17 $ 327.79 $ 365.69 $ 335.37 $ 363.80
Free Cash Flow $ 683.00 $ 1,091.70 $ 780.00 $ 1,472.00 $ 1,433.00 $ 1,408.07 $ 1,574.12 $ 1,694.82 $ 1,745.82 $ 1,826.45
annual growth 60% -29% 89% -3% -2% 12% 8% 3% 5%
39
SIBC
Smith & Nephew - Discounted Cash Flow Model
• Expect strong ability to maintain current revenue growth through FY2019 due to easily manageable cost of goods sold
Source: Capital IQ, Bloomberg, Company Filings 40
Millions FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Total Revenue $ 4,270.00 $ 4,137.00 $ 4,351.00 $ 4,617.00 $ 4,742.76 $ 4,885.04 $ 5,041.37 $ 5,192.61 $ 5,336.56
% growth -3.1% 5.2% 6.1% 2.7% 3.0% 3.2% 3.0% 2.8%
Gross Profit $ 3,137.00 $ 3,070.00 $ 3,268.00 $ 3,490.00 $ 3,537.79 $ 3,657.69 $ 3,783.14 $ 3,895.77 $ 3,996.23
Annual growth -2.1% 6.4% 6.8% 1.4% 5.6% 4.9% 8.1% 6.6%
Margin % 73.5% 74.2% 75.1% 75.6% 74.6% 74.9% 75.0% 75.0% 74.9%
EBITDA $ 1,207.28 $ 1,228.30 $ 1,247.29 $ 1,358.29 $ 1,225.54 $ 1,280.56 $ 1,320.43 $ 1,363.26 $ 1,430.72
Annual growth 1.7% 1.5% 8.9% -9.8% 4.5% 3.1% 3.2% 4.9%
Margin % 28.3% 29.7% 28.7% 29.4% 25.8% 26.2% 26.2% 26.3% 26.8%
Less: Depreciation and
Amortization $ 217.00 $ 212.00 $ 209.00 $ 222.00 $ 228.23 $ 235.07 $ 242.60 $ 249.87 $ 256.80
% of Revenue 5.1% 5.1% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8%
EBIT $ 990.28 $ 1,016.30 $ 1,038.29 $ 1,136.29 $ 997.32 $ 1,045.49 $ 1,077.84 $ 1,113.38 $ 1,173.92
Annual growth 2.6% 2.2% 9.4% -12.2% 4.8% 3.1% 3.3% 5.4%
Margin % 23.2% 24.6% 23.9% 24.6% 16.1% 16.1% 15.8% 15.8% 16.0%
Less: Income Tax $ 266.00 $ 371.00 $ 246.00 $ 213.00 $ 339.09 $ 355.47 $ 366.47 $ 397.25 $ 427.01
29.7% 43.8% 22.5% 26.6% 47.5% 34.3% 31.1% 33.6% 34.2%
Net Income $ 724.28 $ 645.30 $ 792.29 $ 923.29 $ 658.23 $ 690.02 $ 711.37 $ 716.13 $ 746.91
Plus: Depreciation and
Amoritization $ 217.00 $ 212.00 $ 209.00 $ 222.00 $ 228.23 $ 235.07 $ 242.60 $ 249.87 $ 256.80
Less: Capital Expenditures $ (321.00) $ (265.00) $ (340.00) $ (375.00) $ (353.21) $ (380.77) $ (392.62) $ (398.62) $ (413.75)
Capex % of Revenue 7.5% 6.4% 7.8% 8.1% 7.4% 7.8% 7.8% 7.7% 7.8%
Less: Increase in Net Working
Capital $ (194.54) $ 147.12 $ (30.18) $ 95.88 $ 78.09 $ 49.33 $ 79.53 $ 73.28 $ 71.13
Free Cash Flow $ 1,456.82 $ 975.18 $ 1,371.47 $ 1,424.41 $ 1,161.58 $ 1,256.54 $ 1,267.06 $ 1,291.34 $ 1,346.33
Annual Growth -33.1% 40.6% 3.9% -18.5% 8.2% 0.8% 1.9% 4.3%

Weitere ähnliche Inhalte

Was ist angesagt?

2018 Brand Owner Packaging Survey
2018 Brand Owner Packaging Survey2018 Brand Owner Packaging Survey
2018 Brand Owner Packaging SurveyL.E.K. Consulting
 
How fit is your capital allocation strategy?
How fit is your capital allocation strategy? How fit is your capital allocation strategy?
How fit is your capital allocation strategy? EY
 
Top 8 Insights From the 2018 Beauty, Health & Wellness Survey
Top 8 Insights From the 2018 Beauty, Health & Wellness SurveyTop 8 Insights From the 2018 Beauty, Health & Wellness Survey
Top 8 Insights From the 2018 Beauty, Health & Wellness SurveyL.E.K. Consulting
 
Miami University 2015 William Blair I-Banking Competition Winner
Miami University 2015 William Blair I-Banking Competition WinnerMiami University 2015 William Blair I-Banking Competition Winner
Miami University 2015 William Blair I-Banking Competition WinnerMichael T. Loffredo
 
5 Opportunities in the Nutritional Supplements Industry
5 Opportunities in the Nutritional Supplements Industry5 Opportunities in the Nutritional Supplements Industry
5 Opportunities in the Nutritional Supplements IndustryL.E.K. Consulting
 
Australia: Taking Bigger Steps | A.T. Kearney
Australia: Taking Bigger Steps | A.T. KearneyAustralia: Taking Bigger Steps | A.T. Kearney
Australia: Taking Bigger Steps | A.T. KearneyKearney
 
2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdf
2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdf2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdf
2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdfMcKinsey on Healthcare
 
What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?
What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?
What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?Boston Consulting Group
 
2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...
2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...
2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...Demetre Carnot
 
China Exit or Co-Investment Opportunities for German PE Investors
China Exit or Co-Investment Opportunities for German PE InvestorsChina Exit or Co-Investment Opportunities for German PE Investors
China Exit or Co-Investment Opportunities for German PE InvestorsL.E.K. Consulting
 
Pursuing Customer Inspired Growth
Pursuing Customer Inspired GrowthPursuing Customer Inspired Growth
Pursuing Customer Inspired GrowthKearney
 
William Blair Investment Banking Competition Slide Deck
William Blair Investment Banking Competition Slide DeckWilliam Blair Investment Banking Competition Slide Deck
William Blair Investment Banking Competition Slide DeckEric Bonelli
 
Federal Technology Vision 2021: Full U.S. Federal Survey Findings | Accenture
Federal Technology Vision 2021: Full U.S. Federal Survey Findings | AccentureFederal Technology Vision 2021: Full U.S. Federal Survey Findings | Accenture
Federal Technology Vision 2021: Full U.S. Federal Survey Findings | Accentureaccenture
 
William Blair Case Competition
William Blair Case CompetitionWilliam Blair Case Competition
William Blair Case CompetitionNhat Pham
 
2015 - Cleveland Research Company Stock Pitch Competition Runner Up
2015 - Cleveland Research Company Stock Pitch Competition Runner Up2015 - Cleveland Research Company Stock Pitch Competition Runner Up
2015 - Cleveland Research Company Stock Pitch Competition Runner UpMichael T. Loffredo
 
What’s Chipping Away at Automotive Production
What’s Chipping Away at Automotive ProductionWhat’s Chipping Away at Automotive Production
What’s Chipping Away at Automotive ProductionBoston Consulting Group
 
2019 Media and Entertainment Study
2019 Media and Entertainment Study2019 Media and Entertainment Study
2019 Media and Entertainment StudyL.E.K. Consulting
 
15th Annual William Blair Investment Banking Case Competition
15th Annual William Blair Investment Banking Case Competition15th Annual William Blair Investment Banking Case Competition
15th Annual William Blair Investment Banking Case CompetitionOscar Arenas
 
Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19
Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19
Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19Boston Consulting Group
 

Was ist angesagt? (20)

2018 Brand Owner Packaging Survey
2018 Brand Owner Packaging Survey2018 Brand Owner Packaging Survey
2018 Brand Owner Packaging Survey
 
How fit is your capital allocation strategy?
How fit is your capital allocation strategy? How fit is your capital allocation strategy?
How fit is your capital allocation strategy?
 
Top 8 Insights From the 2018 Beauty, Health & Wellness Survey
Top 8 Insights From the 2018 Beauty, Health & Wellness SurveyTop 8 Insights From the 2018 Beauty, Health & Wellness Survey
Top 8 Insights From the 2018 Beauty, Health & Wellness Survey
 
Miami University 2015 William Blair I-Banking Competition Winner
Miami University 2015 William Blair I-Banking Competition WinnerMiami University 2015 William Blair I-Banking Competition Winner
Miami University 2015 William Blair I-Banking Competition Winner
 
5 Opportunities in the Nutritional Supplements Industry
5 Opportunities in the Nutritional Supplements Industry5 Opportunities in the Nutritional Supplements Industry
5 Opportunities in the Nutritional Supplements Industry
 
Australia: Taking Bigger Steps | A.T. Kearney
Australia: Taking Bigger Steps | A.T. KearneyAustralia: Taking Bigger Steps | A.T. Kearney
Australia: Taking Bigger Steps | A.T. Kearney
 
2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdf
2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdf2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdf
2022 COVID-19 Consumer Healthcare Insights-Feb 2022.pdf
 
What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?
What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?
What Does the Recovery of Demand for Urban Mobility Look Like Post-COVID-19?
 
2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...
2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...
2020 - 13th Annual William Blair Investment Banking Case Competition Presenta...
 
China Exit or Co-Investment Opportunities for German PE Investors
China Exit or Co-Investment Opportunities for German PE InvestorsChina Exit or Co-Investment Opportunities for German PE Investors
China Exit or Co-Investment Opportunities for German PE Investors
 
Pursuing Customer Inspired Growth
Pursuing Customer Inspired GrowthPursuing Customer Inspired Growth
Pursuing Customer Inspired Growth
 
William Blair Investment Banking Competition Slide Deck
William Blair Investment Banking Competition Slide DeckWilliam Blair Investment Banking Competition Slide Deck
William Blair Investment Banking Competition Slide Deck
 
Federal Technology Vision 2021: Full U.S. Federal Survey Findings | Accenture
Federal Technology Vision 2021: Full U.S. Federal Survey Findings | AccentureFederal Technology Vision 2021: Full U.S. Federal Survey Findings | Accenture
Federal Technology Vision 2021: Full U.S. Federal Survey Findings | Accenture
 
William Blair Case Competition
William Blair Case CompetitionWilliam Blair Case Competition
William Blair Case Competition
 
2015 - Cleveland Research Company Stock Pitch Competition Runner Up
2015 - Cleveland Research Company Stock Pitch Competition Runner Up2015 - Cleveland Research Company Stock Pitch Competition Runner Up
2015 - Cleveland Research Company Stock Pitch Competition Runner Up
 
What’s Chipping Away at Automotive Production
What’s Chipping Away at Automotive ProductionWhat’s Chipping Away at Automotive Production
What’s Chipping Away at Automotive Production
 
2019 Media and Entertainment Study
2019 Media and Entertainment Study2019 Media and Entertainment Study
2019 Media and Entertainment Study
 
2019 CPG Growth Leaders Report
2019 CPG Growth Leaders Report2019 CPG Growth Leaders Report
2019 CPG Growth Leaders Report
 
15th Annual William Blair Investment Banking Case Competition
15th Annual William Blair Investment Banking Case Competition15th Annual William Blair Investment Banking Case Competition
15th Annual William Blair Investment Banking Case Competition
 
Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19
Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19
Urban Mobility Is Evolving in Unexpected Ways Due to COVID-19
 

Andere mochten auch

Stryker Final Report
Stryker Final ReportStryker Final Report
Stryker Final ReportMinh Phan
 
Stryker 2003_Stryker_AR
Stryker 2003_Stryker_ARStryker 2003_Stryker_AR
Stryker 2003_Stryker_ARfinance34
 
Goldman sachs industrial conference nov 12, 2014 t robinson
Goldman sachs industrial conference   nov 12, 2014 t robinsonGoldman sachs industrial conference   nov 12, 2014 t robinson
Goldman sachs industrial conference nov 12, 2014 t robinsonPLG Consulting
 
Stryker 50015_STR04_AR
Stryker 50015_STR04_ARStryker 50015_STR04_AR
Stryker 50015_STR04_ARfinance34
 
Valuation Methodologies
Valuation MethodologiesValuation Methodologies
Valuation MethodologiesAshley Larson
 
DegreeLinked Perpetuity Presentation
DegreeLinked Perpetuity PresentationDegreeLinked Perpetuity Presentation
DegreeLinked Perpetuity PresentationMichael Herlache
 
#Financial Modeling: Growing needs of financial modeling skills in financial ...
#Financial Modeling: Growing needs of financial modeling skills in financial ...#Financial Modeling: Growing needs of financial modeling skills in financial ...
#Financial Modeling: Growing needs of financial modeling skills in financial ...13 Llama Interactive
 
Goldman Sachs European Financials Conference
Goldman Sachs European Financials ConferenceGoldman Sachs European Financials Conference
Goldman Sachs European Financials ConferenceAegon
 
Private Equity Origination and Investment Thesis Research
Private Equity Origination and Investment Thesis ResearchPrivate Equity Origination and Investment Thesis Research
Private Equity Origination and Investment Thesis ResearchAshley Larson
 
Financial modeling presentation
Financial modeling presentationFinancial modeling presentation
Financial modeling presentationMajd Ghanem,MBA
 
Discounted Cash Flow
Discounted Cash FlowDiscounted Cash Flow
Discounted Cash FlowAshley Larson
 
Medical device Industry 2015
Medical device Industry 2015Medical device Industry 2015
Medical device Industry 2015Rushikesh Markad
 

Andere mochten auch (16)

Stryker Final Report
Stryker Final ReportStryker Final Report
Stryker Final Report
 
Stryker
StrykerStryker
Stryker
 
Stryker 2003_Stryker_AR
Stryker 2003_Stryker_ARStryker 2003_Stryker_AR
Stryker 2003_Stryker_AR
 
Goldman sachs industrial conference nov 12, 2014 t robinson
Goldman sachs industrial conference   nov 12, 2014 t robinsonGoldman sachs industrial conference   nov 12, 2014 t robinson
Goldman sachs industrial conference nov 12, 2014 t robinson
 
Stryker 50015_STR04_AR
Stryker 50015_STR04_ARStryker 50015_STR04_AR
Stryker 50015_STR04_AR
 
Valuation Methodologies
Valuation MethodologiesValuation Methodologies
Valuation Methodologies
 
Finance with Excel
Finance with ExcelFinance with Excel
Finance with Excel
 
DegreeLinked Perpetuity Presentation
DegreeLinked Perpetuity PresentationDegreeLinked Perpetuity Presentation
DegreeLinked Perpetuity Presentation
 
#Financial Modeling: Growing needs of financial modeling skills in financial ...
#Financial Modeling: Growing needs of financial modeling skills in financial ...#Financial Modeling: Growing needs of financial modeling skills in financial ...
#Financial Modeling: Growing needs of financial modeling skills in financial ...
 
REFM's How Developers Price The Dirt
REFM's How Developers Price The DirtREFM's How Developers Price The Dirt
REFM's How Developers Price The Dirt
 
Valuation presentation
Valuation presentationValuation presentation
Valuation presentation
 
Goldman Sachs European Financials Conference
Goldman Sachs European Financials ConferenceGoldman Sachs European Financials Conference
Goldman Sachs European Financials Conference
 
Private Equity Origination and Investment Thesis Research
Private Equity Origination and Investment Thesis ResearchPrivate Equity Origination and Investment Thesis Research
Private Equity Origination and Investment Thesis Research
 
Financial modeling presentation
Financial modeling presentationFinancial modeling presentation
Financial modeling presentation
 
Discounted Cash Flow
Discounted Cash FlowDiscounted Cash Flow
Discounted Cash Flow
 
Medical device Industry 2015
Medical device Industry 2015Medical device Industry 2015
Medical device Industry 2015
 

Ähnlich wie SIBC Goldman Sachs : Stryker/Smith & Nephew

U.S. Life Sciences industry trends and clusters
U.S. Life Sciences industry trends and clustersU.S. Life Sciences industry trends and clusters
U.S. Life Sciences industry trends and clustersJLL
 
Healthcare Outlook 2015 Global & APAC
Healthcare Outlook 2015 Global & APACHealthcare Outlook 2015 Global & APAC
Healthcare Outlook 2015 Global & APACJay Chandran K
 
Medical Devices & Diagnostics Asia - Balancing Risk & Reward Whitepaper
Medical Devices & Diagnostics Asia - Balancing Risk & Reward WhitepaperMedical Devices & Diagnostics Asia - Balancing Risk & Reward Whitepaper
Medical Devices & Diagnostics Asia - Balancing Risk & Reward WhitepaperSimranjit Singh
 
Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021
Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021
Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021Mercer Capital
 
Catalent (CTLT) Equity Report
Catalent (CTLT) Equity ReportCatalent (CTLT) Equity Report
Catalent (CTLT) Equity ReportLeon Stempert
 
China 2020: Medical Devices Sector
China 2020:  Medical Devices Sector China 2020:  Medical Devices Sector
China 2020: Medical Devices Sector France Houdard
 
spinal-implants-market-pharmiweb.pdf
spinal-implants-market-pharmiweb.pdfspinal-implants-market-pharmiweb.pdf
spinal-implants-market-pharmiweb.pdfCarlaBehler
 
Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ...
 Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ... Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ...
Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ...Hexa Research
 
Diagnostics Industry Outllook Asia 2009
Diagnostics Industry Outllook Asia 2009Diagnostics Industry Outllook Asia 2009
Diagnostics Industry Outllook Asia 2009Siddharth Singh
 
Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...
Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...
Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...Uday M
 

Ähnlich wie SIBC Goldman Sachs : Stryker/Smith & Nephew (20)

U.S. Life Sciences industry trends and clusters
U.S. Life Sciences industry trends and clustersU.S. Life Sciences industry trends and clusters
U.S. Life Sciences industry trends and clusters
 
ABT2016-4
ABT2016-4ABT2016-4
ABT2016-4
 
Healthcare Outlook 2015 Global & APAC
Healthcare Outlook 2015 Global & APACHealthcare Outlook 2015 Global & APAC
Healthcare Outlook 2015 Global & APAC
 
Medical Devices & Diagnostics Asia - Balancing Risk & Reward Whitepaper
Medical Devices & Diagnostics Asia - Balancing Risk & Reward WhitepaperMedical Devices & Diagnostics Asia - Balancing Risk & Reward Whitepaper
Medical Devices & Diagnostics Asia - Balancing Risk & Reward Whitepaper
 
Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021
Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021
Mercer Capital's Value Focus: Medical Technology | Mid-Year 2021
 
Catalent (CTLT) Equity Report
Catalent (CTLT) Equity ReportCatalent (CTLT) Equity Report
Catalent (CTLT) Equity Report
 
China 2020: Medical Devices Sector
China 2020:  Medical Devices Sector China 2020:  Medical Devices Sector
China 2020: Medical Devices Sector
 
MEDTECH 2014 Opening Keynote
MEDTECH 2014 Opening KeynoteMEDTECH 2014 Opening Keynote
MEDTECH 2014 Opening Keynote
 
spinal-implants-market-pharmiweb.pdf
spinal-implants-market-pharmiweb.pdfspinal-implants-market-pharmiweb.pdf
spinal-implants-market-pharmiweb.pdf
 
NeoGenomics Laboratory Company Overview Presentation 01/09/2014
NeoGenomics Laboratory Company Overview Presentation 01/09/2014NeoGenomics Laboratory Company Overview Presentation 01/09/2014
NeoGenomics Laboratory Company Overview Presentation 01/09/2014
 
NeoGenomics Company Overview Presentation 2013
NeoGenomics Company Overview Presentation 2013NeoGenomics Company Overview Presentation 2013
NeoGenomics Company Overview Presentation 2013
 
NeoGenomics Company Overview Presentation 2013_10_23
NeoGenomics Company Overview Presentation 2013_10_23 NeoGenomics Company Overview Presentation 2013_10_23
NeoGenomics Company Overview Presentation 2013_10_23
 
NeoGenomics Laboratory Company Overview Presentation 01/20/2014
NeoGenomics Laboratory Company Overview Presentation 01/20/2014NeoGenomics Laboratory Company Overview Presentation 01/20/2014
NeoGenomics Laboratory Company Overview Presentation 01/20/2014
 
2013 12 04 neo company overview presentation
2013 12 04   neo company overview presentation2013 12 04   neo company overview presentation
2013 12 04 neo company overview presentation
 
NeoGenomics Company Overview Presentation 12/04/2013
NeoGenomics Company Overview Presentation 12/04/2013NeoGenomics Company Overview Presentation 12/04/2013
NeoGenomics Company Overview Presentation 12/04/2013
 
NeoGenomics Laboratory Company Overview Presentation 02/19/2014
NeoGenomics Laboratory Company Overview Presentation 02/19/2014NeoGenomics Laboratory Company Overview Presentation 02/19/2014
NeoGenomics Laboratory Company Overview Presentation 02/19/2014
 
Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ...
 Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ... Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ...
Home Healthcare Market Analysis, Size, Share, Growth and Forecast to 2020 | ...
 
Healthcare whitepaper 20150218.pptx
Healthcare whitepaper   20150218.pptxHealthcare whitepaper   20150218.pptx
Healthcare whitepaper 20150218.pptx
 
Diagnostics Industry Outllook Asia 2009
Diagnostics Industry Outllook Asia 2009Diagnostics Industry Outllook Asia 2009
Diagnostics Industry Outllook Asia 2009
 
Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...
Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...
Intravenous Solutions Market Insights - Global Industry Growth and Forecast t...
 

Kürzlich hochgeladen

NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023Steve Rader
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsyasinnathani
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHelene Heckrotte
 
A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.mcshagufta46
 
PDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdfPDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdfHajeJanKamps
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfCharles Cotter, PhD
 
Developing Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, OursDeveloping Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, OursKaiNexus
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfAnhNguyen97152
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...IMARC Group
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZKanakChauhan5
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfSourav Sikder
 
7movierulz.uk
7movierulz.uk7movierulz.uk
7movierulz.ukaroemirsr
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsP&CO
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
Introduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxIntroduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxJemalSeid25
 
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxCracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxWorkforce Group
 
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)tazeenaila12
 
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003believeminhh
 
MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhangmcgroupjeya
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...Brian Solis
 

Kürzlich hochgeladen (20)

NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story points
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
 
A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.
 
PDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdfPDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdf
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
 
Developing Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, OursDeveloping Coaching Skills: Mine, Yours, Ours
Developing Coaching Skills: Mine, Yours, Ours
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZ
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
 
7movierulz.uk
7movierulz.uk7movierulz.uk
7movierulz.uk
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizations
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
Introduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxIntroduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptx
 
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxCracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
 
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
Harvard Business Review.pptx | Navigating Labor Unrest (March-April 2024)
 
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
The Vietnam Believer Newsletter_MARCH 25, 2024_EN_Vol. 003
 
MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhang
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
 

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
  • 18. SIBC Valuation Football Field $84 $106 $79 $84 $88 $91 $76 $92 $116 $90 $99 $99 $101 $98 $60 $70 $80 $90 $100 $110 $120 $130 DCF Output 20% Implied Premium 11.3x-13.2x 2016 EV/EBITDA 13.0x-16.2x 2015 EV/EBITDA 3.1x-3.5x 2016 EV/Revenue 3.4x-3.8x 2015 EV/Revenue 52 Week Trading Range DCF Valuation Precedent Transaction Comparable Companies Implied Valuation: $84.92 – $93.32Current Price: $92.29 Trading History 18
  • 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
  • 27. SIBC Valuation Football Field $37 $39 $36 $39 $42 $38 $29 $42 $45 $40 $44 $48 $45 $40 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 DCF Output 20% Implied Premium 12.7x-14x 2016 EV/EBITDA 14.5x-16.1x 2015 EV/EBITDA 3.8x-4.1x 2016 EV/Revenue 3.7x-4.0x 2015 EV/Revenue 52 Week Trading Range DCF Valuation Precedent Transaction Comparable Companies Implied Valuation: $38.00 - $42.36Current Price: $34.52 Trading History 27
  • 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
  • 29. SIBC Accretion/Dilution 29 Combined Income Statements Millions FY2015 FY2016 FY2017 Total Revenue $ 14,720.92 $ 15,500.13 $ 16,239.93 % growth 5.3% 4.8% Gross Profit $ 10,124.17 $ 10,694.87 $ 11,209.99 annual growth 5.6% 4.8% margin % 68.8% 69.0% 69.0% EBITDA $ 3,530.40 $ 3,757.93 $ 4,008.97 annual growth 6.4% 6.7% margin % 24.0% 24.2% 24.7% Less: Depreciation and Amortization $ 382.75 $ 400.28 $ 418.98 % of Revenue 2.6% 2.6% 2.6% EBIT $ 3,147.66 $ 3,357.65 $ 3,590.00 annual growth 6.7% 6.9% margin % 21.4% 21.7% 22.1% Pretax Income $ 3,019.35 $ 3,515.92 $ 3,909.11 Less: Income Tax $ 777.87 $ 803.73 $ 903.48 25.76% 22.86% 23.11% Net Income $ 2,241.48 $ 2,712.19 $ 3,005.63 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
  • 39. SIBC Stryker - Discounted Cash Flow Model Source: CapIQ, Bloomberg, Company Filings Millions FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 Total Revenue $ 7,320.00 $ 8,307.00 $ 8,657.00 $ 9,021.00 $ 9,675.00 $ 9,975.92 $ 10,507.13 $ 11,015.93 $ 11,435.80 $ 11,657.50 % growth 13.5% 4.2% 4.2% 7.2% 3.1% 5.3% 4.8% 3.8% 1.9% Gross Profit $ 5,034.30 $ 5,639.00 $ 5,894.00 $ 6,090.00 $ 6,412.00 $ 6,584.71 $ 6,956.35 $ 7,289.79 $ 7,673.42 $ 7,845.50 annual growth 12.0% 4.5% 3.3% 5.3% 2.7% 5.6% 4.8% 5.3% 2.2% margin % 68.8% 67.9% 68.1% 67.5% 66.3% 66.0% 66.2% 66.2% 67.1% 67.3% EBITDA $ 1,925.80 $ 2,093.00 $ 2,209.00 $ 2,248.00 $ 2,414.00 $ 2,533.09 $ 2,712.44 $ 2,931.13 $ 3,045.88 $ 3,032.61 annual growth 8.7% 5.5% 1.8% 7.4% 4.9% 7.1% 8.1% 3.9% -0.4% margin % 26.3% 25.2% 25.5% 24.9% 25.0% 25.4% 25.8% 26.6% 26.6% 26.0% Less: Depreciation and Amortization $ 58.20 $ 122.00 $ 123.00 $ 138.00 $ 188.00 $ 149.67 $ 158.56 $ 165.41 $ 157.88 $ 160.61 % of Revenue 0.8% 1.5% 1.4% 1.5% 1.9% 1.5% 1.5% 1.5% 1.4% 1.4% EBIT $ 1,867.60 $ 1,971.00 $ 2,086.00 $ 2,110.00 $ 2,226.00 $ 2,383.42 $ 2,553.89 $ 2,765.73 $ 2,888.00 $ 2,872.00 annual growth 5.5% 5.8% 1.2% 5.5% 7.1% 7.2% 8.3% 4.4% -0.6% margin % 25.5% 23.7% 24.1% 23.4% 23.0% 23.9% 24.3% 25.1% 25.3% 24.6% Pretax Income $ 1,729.60 $ 1,686.00 $ 1,705.00 $ 1,212.00 $ 1,160.00 $ 2,305.35 $ 2,480.37 $ 2,730.11 $ 2,758.50 $ 2,872.00 Less: Income Tax $ 456.20 $ 341.00 $ 407.00 $ 206.00 $ 645.00 $ 438.78 $ 448.26 $ 537.01 $ 581.50 $ 574.00 24.43% 17.30% 19.51% 9.76% 28.98% 19.03% 18.07% 19.67% 21.08% 19.99% Net Income $ 1,273.40 $ 1,345.00 $ 1,298.00 $ 1,006.00 $ 515.00 $ 1,866.57 $ 2,032.11 $ 2,193.10 $ 2,177.00 $ 2,298.00 Plus: Depreciation and Amortization $ 58.20 $ 122.00 $ 123.00 $ 138.00 $ 188.00 $ 149.67 $ 158.56 $ 165.41 $ 157.88 $ 160.61 Less: Capital Expenditures $ 131.30 $ 182.10 $ 226.00 $ 210.00 $ 195.00 $ 233.00 $ 288.75 $ 298.00 $ 253.69 $ 268.36 Capex % of Depr. & Amor. 225.60% 149.26% 183.74% 152.17% 103.72% 155.68% 182.11% 180.16% 160.69% 167.08% Less: Increase in Net Working Capital $ 517.30 $ 193.20 $ 415.00 $ (538.00) $ (925.00) $ 375.17 $ 327.79 $ 365.69 $ 335.37 $ 363.80 Free Cash Flow $ 683.00 $ 1,091.70 $ 780.00 $ 1,472.00 $ 1,433.00 $ 1,408.07 $ 1,574.12 $ 1,694.82 $ 1,745.82 $ 1,826.45 annual growth 60% -29% 89% -3% -2% 12% 8% 3% 5% 39
  • 40. SIBC Smith & Nephew - Discounted Cash Flow Model • Expect strong ability to maintain current revenue growth through FY2019 due to easily manageable cost of goods sold Source: Capital IQ, Bloomberg, Company Filings 40 Millions FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 Total Revenue $ 4,270.00 $ 4,137.00 $ 4,351.00 $ 4,617.00 $ 4,742.76 $ 4,885.04 $ 5,041.37 $ 5,192.61 $ 5,336.56 % growth -3.1% 5.2% 6.1% 2.7% 3.0% 3.2% 3.0% 2.8% Gross Profit $ 3,137.00 $ 3,070.00 $ 3,268.00 $ 3,490.00 $ 3,537.79 $ 3,657.69 $ 3,783.14 $ 3,895.77 $ 3,996.23 Annual growth -2.1% 6.4% 6.8% 1.4% 5.6% 4.9% 8.1% 6.6% Margin % 73.5% 74.2% 75.1% 75.6% 74.6% 74.9% 75.0% 75.0% 74.9% EBITDA $ 1,207.28 $ 1,228.30 $ 1,247.29 $ 1,358.29 $ 1,225.54 $ 1,280.56 $ 1,320.43 $ 1,363.26 $ 1,430.72 Annual growth 1.7% 1.5% 8.9% -9.8% 4.5% 3.1% 3.2% 4.9% Margin % 28.3% 29.7% 28.7% 29.4% 25.8% 26.2% 26.2% 26.3% 26.8% Less: Depreciation and Amortization $ 217.00 $ 212.00 $ 209.00 $ 222.00 $ 228.23 $ 235.07 $ 242.60 $ 249.87 $ 256.80 % of Revenue 5.1% 5.1% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8% EBIT $ 990.28 $ 1,016.30 $ 1,038.29 $ 1,136.29 $ 997.32 $ 1,045.49 $ 1,077.84 $ 1,113.38 $ 1,173.92 Annual growth 2.6% 2.2% 9.4% -12.2% 4.8% 3.1% 3.3% 5.4% Margin % 23.2% 24.6% 23.9% 24.6% 16.1% 16.1% 15.8% 15.8% 16.0% Less: Income Tax $ 266.00 $ 371.00 $ 246.00 $ 213.00 $ 339.09 $ 355.47 $ 366.47 $ 397.25 $ 427.01 29.7% 43.8% 22.5% 26.6% 47.5% 34.3% 31.1% 33.6% 34.2% Net Income $ 724.28 $ 645.30 $ 792.29 $ 923.29 $ 658.23 $ 690.02 $ 711.37 $ 716.13 $ 746.91 Plus: Depreciation and Amoritization $ 217.00 $ 212.00 $ 209.00 $ 222.00 $ 228.23 $ 235.07 $ 242.60 $ 249.87 $ 256.80 Less: Capital Expenditures $ (321.00) $ (265.00) $ (340.00) $ (375.00) $ (353.21) $ (380.77) $ (392.62) $ (398.62) $ (413.75) Capex % of Revenue 7.5% 6.4% 7.8% 8.1% 7.4% 7.8% 7.8% 7.7% 7.8% Less: Increase in Net Working Capital $ (194.54) $ 147.12 $ (30.18) $ 95.88 $ 78.09 $ 49.33 $ 79.53 $ 73.28 $ 71.13 Free Cash Flow $ 1,456.82 $ 975.18 $ 1,371.47 $ 1,424.41 $ 1,161.58 $ 1,256.54 $ 1,267.06 $ 1,291.34 $ 1,346.33 Annual Growth -33.1% 40.6% 3.9% -18.5% 8.2% 0.8% 1.9% 4.3%

Hinweis der Redaktion

  1. Enterprise Software revenue = $37B Jimmy/Nate- Takeaway
  2. Maria Bain Consulting Statista McKinsey Done
  3. Mark -Add Overview/ Analysis -Takeaway Box
  4. Jimmy
  5. Jimmy
  6. Mitch
  7. Mark SNN is not trading at 17 dollars- needs to be fixed especially because we are acquiring them. Use Bloomberg, not capiq DONE
  8. Jimmy DONE
  9. Jimmy
  10. Maria DONE
  11. Nate DONE
  12. 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)
  13. Nate - 3
  14. 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)
  15. Nate
  16. Maria DONE
  17. DONE
  18. DONE
  19. DONE
  20. 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
  21. DONE
  22. Mark DONE
  23. Mitch DONE
  24. 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)
  25. Jimmy
  26. Nate DONE