Smith & Nephew To Focus On Market Disruption, Not Mergers
By Jof Enriquez,
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Smith & Nephew wants to concentrate on bringing disruptive products into the market rather than getting bigger through mergers. However, the company is reportedly open to the acquisitions of high-growth companies in emerging markets — if the acquisition makes strategic sense.
The company has been the subject of recent speculation about a takeover by bigger rivals, such as Stryker and Medtronic. The orthopedics segment is also seeing increasing consolidation, with the Zimmer-Biomet merger being the biggest deal so far. But S&N’s chief executive recently said that he is not too keen on those types of transactions.
"I am not a fan of the concept 'big is beautiful,'" S&N CEO Olivier Bohuon recently told an audience during the 33rd Annual J.P. Morgan Healthcare Conference in San Francisco, according to a Reuters report.
Bohuon declined to comment on the rumored bid by Stryker. He did say that recent mergers in the industry have done little to change the existing market shares of the companies involved. He pointed out that reconstructive products have become a low-growth, commoditized business, and have posted price declines of 3 to 4 percent annually.
Moreover, patients who receive hip and knee implants are generally satisfied with them. As a result, there is little innovation in hip and knee replacements, Bohuon said in the report.
"For me, what matters is the ability of a company to bring to the market disruptive products. You don't have to be big to do that," Bohuon said, according to Reuters. He said that S&N is adopting a rebalancing strategy concentrating on higher-growth areas such as sports medicine and wound care, rather than hip and knee implants.
A presentation shown during the event illustrated how the company has rebalanced its source of revenue since 2011. That year, 65 percent of revenue came from the lower-growth segment that included its reconstruction business, while higher-growth segments generated just 35 percent. Last year, the ratio was 50-50. The company plans to raise the portion of the higher-growth section to 67 percent in the future by concentrating on sports medicine and advanced wound products.
Continued speculation of a takeover by larger companies has not prevented S&N from acquiring assets of its own. Last year, it bought ArthroCare Corporation for $1.5 billion. Bohuon said during the recent event in San Francisco that the company is still on the lookout for "bolt-on" acquisitions, particularly deals that would help it grow in emerging markets, according to Reuters.
"We just try to very careful," Bohuon said in a recording of a Q&A session with analysts. "High-growth, high-margin business: this is what we're looking for."
In order to remain competitive against bigger rivals, S&N last year also unveiled its Syncera solution for hospital clients. Under the new value model, hospitals can save 40 to 50 percent in buying medical devices and implants without the extra features usually bundled in the company’s premium model.