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Why Medtronic Acquired Smith & Nephew’s Gynecology Business

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Overview of the Smith & Nephew acquisition

On May 19, 2016, Medtronic (MDT) announced the acquisition of Smith & Nephew’s gynecology business for $350 million. It includes a minimally invasive surgical solution called the Truclear System. The deal is expected to be completed in July 2016. Both companies described the acquisition as a strategic realignment initiative.

Medtronic aims to benefit from the acquisition due to the complementary fit with the company’s existing surgical product portfolio. The acquired business will be reported under the company’s Surgical Solutions division within the Minimally Invasive Technologies Group (or MITG). Medtronic expects the acquisition to be earnings-neutral by 2017 and accretive thereafter.

segment revenue breakdown

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A profile of Smith & Nephew’s gynecology business

Smith & Nephew has recently been restructuring its business. It’s seeking a leaner, more strategic business profile with a focus on robotic surgery and sports medicine. The sale of its gynecology business to Medtronic generated $56 million in 2015. This compares to Smith & Nephew’s total sales of about $1.3 billion. The company aims to initiate a share buyback program in July 2016.

The Truclear System is a key product in Smith & Nephew’s Gynecology product portfolio. It’s a unique device that has visualization capabilities of a hysteroscope along with minimally invasive tissue removal capabilities. It’s used for the removal of intrauterine polyps and fibroids, which are abnormal tissue growths. It’s also used for the treatment of severe cases of abnormal uterine bleeding. It’s estimated that about 75% of US women are prone to develop fibroids at least once in their lifetime. The Truclear System is a market leader and is widely regarded as the standard of care in this specialty area.

Some other companies that manufacture gynecological medical devices include Abbott Laboratories (ABT), Stryker (SYK), and Boston Scientific (BSX). Investors who want to invest in Medtronic can consider the iShares Russell 1000 Value (IWD). IWD holds approximately 1.1% of its total holdings in Medtronic.

In the final part of our series, we’ll look at Medtronic’s new entrance into the robotic surgery business.

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