As we said a few days ago, it is a brave move by Globus but necessary. As a spine-focused company with an ambition to lead the market, they had no choice but to acquire a company. We believe they have done the right thing. Globus could have bought a smaller one like Zimvie, Seaspine, or ATEC. However, they chose to go big. If you want to lead, take risks and make a strong and definitive movement. In the past, other companies have tried to be among the leaders in the spine by buying smaller ones and have failed (Zimmer).
So what is our opinion?
1.-Strategically: It is a wise move as it achieves its intended goal of placing in the top two in the market with a bid to lead. Nuvasive contributes more than $1 billion in sales and a market share of approximately 11.5%. Additionally to market share, it incorporates commercial strength and market penetration in clients, hospitals, and areas where Globus is not strong.
2.-Price: As we mentioned yesterday, what Globus has paid seems reasonable. It’s simply according to market capitalization.
3-Products: Although it is not the most relevant issue since Globus has a complete range of products, it incorporates patents and some complementary products, technologies, and devices. (For more information, please read: what-differentiated-products-does-nuvasive-bring-to-globus-medical/)
4.-Assets and Debts: Globus Medical has no debts and $405 million in cash and equivalents. NuVasive contributes $238 million plus an additional $160 million in operating cash flow. But Globus also receives the debts, which amount to $1,000 million. It should not be a problem since Globus has enough cash to pay the first debt in 2023 ($459 million). The rest ($541) is due in 2025. Even assuming no growth in operating income, two years of combined operating income is more than sufficient to pay off this convertible bond.
On Summary: Integration will not be easy. Cultural change will be a challenge. Globus is a very profitable company with an annual rate of return much higher than that of Nuvasive, which was 10.42% in (2013-2023) compared to 18.3% for Globus. That means that Globus will have to make an effort and work on the optimization of Nuvasive to make it more profitable. But growing and leading are never easy. In short, Globus has done the strategically correct thing, even if it means a significant effort shortly.