Smith & Nephew plc · LSE:SN.
Smith & Nephew — Merger or Acquisition (February 2014)
24 slides from Smith & Nephew's merger presentation, Feb 3, 2014
Slide 1: Acquisition of ArthroCare Corp.
Acquisition of ArthroCare Corp. 3 February 2014
Slide 2: Forward looking statements
Forward looking statements This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "in
Slide 3: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer 2
Slide 4: Highlights
Highlights • ArthroCare is an innovative medical devices company whose sports medicine business is highly complementary to Smith & Nephew • Definitive agreement to acquire for $48.25 per share paid in cash, or approximately $1.7 billion (enterprise value of $1.5 billion) • Major investment in our sp
Slide 5: Compelling strategic rationale
Compelling strategic rationale • A comprehensive resection & repair portfolio with exciting prospects – combination of radio frequency & mechanical resection creates fuller offering – ArthroCare’s shoulder repair innovation strongly complements our knee expertise • Opportunities to drive greater rev
Slide 6: Strong financial rationale
Strong financial rationale • Significant cost & revenue synergies will add $85 million to annual trading profit by 2017 • Meets Smith & Nephew’s investment criteria – ROCE to exceed the Group’s WACC in 2017 – EPSA accretive from 2015 5
Slide 7: Mike Frazzette, President, Advanced Surgical Devices
Mike Frazzette President, Advanced Surgical Devices 6
Slide 8: Overview of ArthroCare
Overview of ArthroCare • Leading developer, manufacturer and marketer of Coblation technology used in a variety of minimally-invasive surgical procedures • ArthroCare’s products are the standard of care for shoulder procedures (sports medicine) and ENT • Focused and dedicated sales and distribution
Slide 9: Coblation technology overview
Coblation technology overview Alternative to standard surgical techniques for removing and treating tissue Standard RF Surgical Products Coblation Plasma-generation process to cut or remove tissue Precise, low temperature tissue removal Ablates tissue structures to remove diseased tissue Gen
Slide 10: A premier sports medicine business
A premier sports medicine business ArthroCare Smith & Nephew • Coblation Technology • DYONICS◊ Shaver Blades and Burrs for – Ambient Family of RF Wands knee, shoulder, hip and extremities Resection – Topaz RF Wands for extremities • ELECTROBLADE◊ – dual function device for • Atlantech handheld Instr
Slide 11: Reaching new customers & markets
Reaching new customers & markets • Increases our scale in the fast growing sports medicine segment • Continued investment in innovative products to drive growth • US – cross-sell the combined portfolio – immediate improvements in case coverage • International – opportunities to drive additional reve
Slide 12: ENT
ENT • Addition of naturally adjacent Ear, Nose & Throat (ENT) business, providing new growth opportunities • Fully direct in the US • Smaller penetration in international markets – in many markets, the sports medicine rep would also call on the ENT specialist • ENTrigue acquisition provides immediat
Slide 13: A compelling prospect
A compelling prospect • Highly complementary • Great for customers • Fast integration 12
Slide 14: Julie Brown, Chief Financial Officer
Julie Brown Chief Financial Officer 13
Slide 15: Four key topics
Four key topics 1. ArthroCare’s recent financial performance 2. Financials of the transaction 3. Synergies and integration costs 4. Financing arrangements 14
Slide 16: ArthroCare's financials
ArthroCare’s financials 2011 2012 $m $m Revenue 355 368 Growth (YOY) 0% 4% Gross profit 252 261 SG&A (149) (155) R&D (29) (32) Adjusted operating profit1 74 74 15 1. Operating profit adjusted for investigation, restatement related and exit costs
Slide 17: Transaction financials
Transaction financials • Purchase price – $48.25 per share or $1.7 billion, in cash – premium of 20% to ArthroCare’s 90-day volume weighted average price per share – 15.7x EV/adjusted 2012 EBITDA • Financing – two year $1.4 billion term loan facility, and – Group’s existing cash resources and bank f
Slide 18: Synergies
Synergies • Revenue & cost synergies to add $85 million to trading profit in 2017 • Net revenue synergies of more than $50 million in 2017 • Significant cost synergies – procurement/supply chain – commercial – overlap of back-office duplication • Tax benefits from manufacturing 17
Slide 19: Additional guidance
Additional guidance • Revenue – elimination of manufacturing & licensing payments from Smith & Nephew (2012: $24 million) • Cost and net revenue synergies drive EPSA growth 2015 onwards • Tax – continue to benefit from low tax rates where manufacturing is located – further benefit from financing the
Slide 20: Financial implications
Financial implications • Priorities under our Capital Allocation Framework: – invest in organic growth – deliver a progressive dividend – make strategic acquisitions and – return excess cash to shareholders Underpinned by leverage commensurate with solid investment grade • Share repurchase programme
Slide 21: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer 20
Slide 22: Summary
Summary • Smith & Nephew has a strong track record in sports medicine • ArthroCare significantly enhances our product portfolio • Many exciting opportunity for additional growth • Platform to create further shareholder value 21
Slide 23: Questions
>£ smith&nephew Questions 22
Slide 24: We are smith&nephew
+“ We are smith&nephew
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