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Stryker Acquires Novadaq, Enhances Its Endoscopic Offerings

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Jul. 20 2017, Updated 9:09 a.m. ET

Deal overview

On June 19, 2017, Stryker (SYK) announced a definitive agreement to acquire Novadaq Technologies (NVDQ) for $701 million. The deal is valued at $11.75 per share. It represents a premium of ~96% over Novadaq’s closing price on June 16, 2017. The deal includes a cash balance of $47 million. The company’s net purchase price is $654 million. The deal will likely close in 3Q17. Stryker’s stock price rose ~0.3% on the day of the announcement.

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Novadaq, the leader in fluorescent imaging technology, is a Canadian company established in 2000. Novadaq technology gives surgeons surgical visualization capabilities. The technology is expected to complement Stryker’s advanced imaging portfolio and enhance the company’s surgical offerings. The technology will also help accelerate Stryker’s focus on providing solutions and services to customers aimed at a lower cost. Novadaq’s portfolio is expected to be integrated with Stryker’s MedSurg business.

Deal synergies

Stryker expects the deal to dilute the adjusted net EPS (earnings per share) by $0.03–$0.05 per share in 2017. However, the adjusted 2017 EPS forecast continues to be $6.35–$6.45. The acquisition is expected to be neutral in 2018 and accretive thereafter.

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Management’s views

Timothy J. Scannell, Stryker’s Group President, MedSurg, and NeuroTechnology, said, “This acquisition aligns with our focus on enabling our customers to see and do more by enhancing cross-specialty surgical visualization. Novadaq’s unique, innovative technology complements our advanced imaging portfolio and expands our product offerings into open and plastic reconstructive surgery. Their innovative technology can reduce post-procedure complication rates and the cost of care for a broad variety of surgical treatments.”

Rival bidder for Novadaq?

According to Canaccord Genuity analyst Jason Mills, a competitive bid might emerge for Novadaq from the likes of Intuitive Surgical (ISRG), Medtronic (MDT), and Johnson & Johnson (JNJ). He thinks Novadaq’s portfolio is a potential strategic fit for all of these companies.

Any events related to the deal might trigger stock price changes for Stryker stock and the Vanguard S&P 500 ETF (VOO). VOO has ~0.26% of its total holdings in Stryker.

Next, we’ll discuss the company’s recent product approval in Stryker’s interventional spine segment.

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