Globus Medical said it has agreed to acquire NuVasive in an all-stock deal valued at $3.1 billion and aimed at creating the world’s “leading musculoskeletal technology company.”

Audubon, Penn.-based Globus makes products for spinal surgery, imaging, joint reconstruction and trauma, and San Diego-based NuVasive specializes in products for spine surgery. 

With the move, the companies said they expect to benefit from a larger combined sales presence and each other’s operational strengths, such as Globus’ in-house manufacturing capacity and NuVasive’s global distribution networks. The combined firm may reduce costs by as much as $170 million over three years, Globus said in a statement on Thursday.

Combined, the company will be the second-largest spine business behind Medtronic, and will have about 21% of the global market share, RBC Capital Markets analyst Shagun Singh wrote in a research note on Thursday. 

The deal values NuVasive’s shares at a 26% premium to their price at Wednesday’s close of trading. 

Skepticism and caution

Analysts expressed some concerns about the potential benefits of the transaction. 

“We didn't believe that [Globus] would want to combine with [NuVasive], as both companies have a different approach to commercialization, profitability, and corporate culture,” BTIG’s Ryan Zimmerman wrote in a note to investors after the announcement. “While we sound skeptical as we write this, we acknowledge that there are clear benefits to scale in the Spine market,” 

“Closing the gap, from a profitability perspective … will be a challenge,” he added.

For JP Morgan analysts Allen Gong and Robbie Marcus, “bigger can be better, but a history of challenged ortho consolidation keeps us cautious” about the deal, they wrote in a note to investors.

RBC’s Singh called the acquisition “somewhat of a surprise to us,” given traditional differences between the two firms, and the history of “high transaction dis-synergies (up to 10% of sales),” when spinal firms combine. 

Still, “we believe the deal could make sense given minimal portfolio overlap, as well as ability to drive global scale and operational synergies,” Singh added.

Shares fall

Some investors signaled they may share the same concerns. Shares of Globus declined about 20 percent in midday trading on Thursday, while NuVasive stock rose 1.6%. Shares of both firms have fallen about 6% in the past 12 months. 

Globus CEO Dan Scavilla said the acquisition will help the company become “the leading musculoskeletal technology company in the world.”

The combined company will have a presence in more than 50 countries with more than 5,000 employees. 

Scavilla didn’t lay out specific plans to cut costs and said that while he’s not making synergies a prime focus of the purchase, the companies’ products, buildings and operations complement each other. 

“This is not a deal that needs to be driven by synergies. We don't need to get into a slash and burn to make this work,” Scavilla said on a call with investors. “And while we certainly need and we'll look at some synergies that will naturally occur, it’s not a high risk project to get this going.” 

Deal terms

Under the terms of the deal, first discussed in 2021, Globus’ shareholders will hold 72% of the combined company, while NuVasive’s current shareholders will hold 28%. NuVasive shareholders will receive .75 share of Globus’ stock for each share of NuVasive’s stock, giving NuVasive an implied share price of $57.72, or a $3.1 billion value, based on Globus’ closing share price on Feb. 8. 

Globus’s senior management will continue to run the company with chairman David Paul, Scavilla, and Globus CFO Keith Pfeil remaining in place. NuVasive CEO Chris Barry will support integration planning. Globus’s board will add three directors from NuVasive’s current board of directors after the merger. 

The acquisition is expected to close in mid-2023, subject to approval by shareholders of both companies and by regulators, and to other closing conditions.

While antitrust concerns may pose an obstacle to the transaction, Globus Chairman David Paul said that “lawyers on both sides” are working on the deal, and noted “robust competition” in the spinal care business. He said Globus doesn’t see issues that are anti-competitive in nature. 

Nuvasive Losses

Globus reported third-quarter net income of $47.4 million, little changed from $47.2 million a year earlier, while NuVasive narrowed its net loss to $1.98 million in the period from a loss of $21.6 million a year earlier. Globus expects full-year net sales growth of 6.8% compared to its 2021 revenue of $958.1 million, according to preliminary results. NuVasive forecasts preliminary 2022 net sales growth of 5.5% compared to net sales of $1.14 billion in 2021.

For 2023, Globus expects net sales growth of 7% to 8% and NuVasive forecasts net sales growth of 6% to 8%, at a constant currency rate.

Updates with comments from analysts.