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Zimmer’s Big Ticket Acquisition of Biomet

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Deal overview

On June 24, 2015, Zimmer Holdings completed the acquisition of Biomet for $14 billion in a cash and equity transaction. The deal positioned the company as the second-largest player in the orthopedics market segment of the medical device industry. Market share increased from 10% to around 17%. The combined company was renamed Zimmer Biomet Holdings and started trading with the ZBH ticker on the NYSE (New York Stock Exchange) and SIX Swiss Exchange on June 29, 2016.

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For the merger to be approved, Zimmer and Biomet were required to dispose of certain business segments. Smith & Nephew (SNN) acquired Zimmer’s Unicondylar Knee system in the US market. DJO Global acquired Biomet’s Cobalt Bone Cement, Optivac Cement Mixing Accessories, and Discovery Elbow System for the US market.

Integration initiatives

Zimmer Biomet is focused on efficiently integrating Zimmer and Biomet. It almost completed the integration of the sales forces in 4Q15. This should help leverage the enhanced product portfolio and geographical reach of the combined company to gain market share and offset pricing pressures. It’s expected that the company will generate annual cost savings of $270 million within the first three years of the acquisition. This will largely come through operational integration and elimination of redundant job positions.

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Acquisition’s strategic fit and opportunities

Zimmer’s acquisition of Biomet has resulted in a company with a highly diversified and broad product portfolio across geographies. The two companies’ extremely complementary product offerings provide breadth and depth to the combined portfolio of products across the entire musculoskeletal segment. So it will help provide more innovation opportunities and enhance value to customers and stakeholders.

Cross-selling opportunities through the company’s established customer relationships, complementary geographic presence, and product portfolios will help increase sales and marketing efficiency. These are expected to translate into enhanced business opportunities and cost-savings.

Financial impact of the deal

In the first year of the acquisition, Zimmer Biomet is expected to be double-digit accretive to its EPS (earnings per share). The company is on track to realize expected annual pre-tax operating profit synergies of $350 million by the end of the third year of the deal. Approximately $155 million of net synergies are expected to be realized by the end of 1Q16.

Other major players involved in recent acquisitions of considerably large value in the United States include Becton Dickinson (BDX), Stryker (SYK), and Medtronic (MDT).

The SPDR S&P 500 ETF (SPY) provides diversified exposure to investors and has a portfolio allocation of approximately 0.11% in ZBH.

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