Zimmer’s LDR Deal Could Force Others to Grow a Dealmaking Spine

(The Street.com–Read Original Article)— Globus Medical , K2M Group Holdings, NuVasive, Orthofix International, Xtant Medical Holdings and Alphatec are among spine companies that investors should keep tabs as prospective targets or buyers following Zimmer Biomet Holdings’ recent $1 billion deal for LDR Holding, according to health care industry sources.

Even Zimmer’s seemingly hefty premium for LDR–64% more than the closing price of the target’s shares one day prior to the announced deal on June 7–hasn’t satisfied some investors.LDR shares finished slightly above the $37 per share price over the past five consecutive trading days. Just Wednesday, 1.5%-shareholder Empirical Capital Management, in a letter to the board of the San Diego-based company, urged it to either solicit a superior transaction at no less than $42 a share or remain an independent company.Despite analysts’ belief that the transaction followed a competitive process of some sort, Empirical managing partner Cristan Blackman complained in the letter that the agreement lacked any sign of such an auction, such as a go-shop provision or a no-solicitation covenant. Representatives of Zimmer and LDR couldn’t be reached Tuesday.

The Deal previously reported, however, that while a competitive bid for the spine disorder technology company is not anticipated, fear of Zimmer becoming an substantially greater competitive threat with LDR under its wing could motivate other buyers.  While the Zimmer-LDR deal in one sense opens the doors for further M&A among spinal device companies, it’s important to note that LDR was a particularly unique technology play, noted Brean Capital’s Jason Wittes.”Its safe to say there’s going to be more of a consolidation period,” Wittes said. “LDR was the most obvious takeout.”With LDR no longer on the market–assuming successful completion of the pending deal–K2M, whose current market cap is approaching $640 million, would make a logical bolt-on acquisition for a large medical device company.

Globus, with a market cap sitting at about $2.2 billion, and NuVasive, with a market cap of about $2.9 billion, represent the next sizable players that could emerge as takeout candidates, according to Wittes, Leerink Partners’ Rich Newitter, and the anonymous source.Both Globus and NuVasive could also participate in consolidation.

LDR is viewed as a highly attractive asset largely because of its Mobi-C CDR device, which is the first and only FDA-approved product that treats both one- and two-level damaged cervical discs.

Other companies that operation in the spine fixation space and are among possible targets include Lewisville, Texas-based Orthofix, with a market cap approaching $800 million, as well as the much smaller Belgrade, Mont.-based Xtant Medical, with a market cap of just $25 million, and Carlsbad, Calif.-based Alphatec, with a market cap of about $27 million, Newitter added.

NuVasive, in particular, is viewed of as being in a separate category as it works to gain share in the new and growing non-fusion spine market, and is likely more of a buyer than a seller for now, sources said.CEO Greg Lucier, having taken the reigns of NuVasive in May 2015, has been outspoken about his intentions to bulk up through M&A.The San Diego-based company earlier this month announced its third deal of the year, agreeing to pay $98 million for patient monitoring company Biotronic NeuroNetwork. In an even larger move, NuVasive in January said it would pay up to $410 million for Ellipse Technologies, a maker of noninvasive magnetically adjustable implant systems.