Smith & Nephew to buy medical devices firm ArthroCare for $1.7 bn

British medical equipment maker Smith & Nephew today struck a deal to buy medical devices firm ArthroCare Corp for $1.7 billion in cash in order to strengthen its sports medicine business.

The deal comes two months after Smith & Nephew paid $782 million to buy Texas-based Healthpoint in order to strengthen its wound management division. (See: Smith & Nephew to buy privately-held Healthpoint for $782 million)

London-based  Smith & Nephew has made a definitive offer to pay Nasdaq-listed ArthroCare $48.25 per share, a 20-per cent premium over the 90-day average price of the Austin, Texas-based company.

ArthroCare develops and manufactures surgical devices, instruments, and implants. Its two core product areas are sports medicine and ear, nose, and throat, with a small presence in spine, wound care, urology and gynaecology.

Its patented Coblation technology offers an alternative to standard mechanical resection techniques by gently dissolving target tissue and minimising damage to surrounding healthy tissue.

This technology is used extensively in many types of minimally invasive surgery. An earlier version of Coblation is licensed to Smith & Nephew.

In sports medicine ArthroCare has a range of anatomical solutions for joints, in particular the shoulder, including its OPUS AutoCuff knotless fixation system.

ArthroCare has its main manufacturing sites in Costa Rica and an R&D facility in Irvine, California. It has approximately 1,800 employees, including a sales force of around 400.

In the year ended 31 December 2012, ArthroCare had net sales of $368 million, net income before taxes of $64 million, total assets of $520 million and net assets of $445 million.

Total revenue for the first three quarters of 2013 was $276 million, an increase of 2 per cent over the first three quarters of 2012.

In 2012, 68 per cent of its product revenue came from the Americas region with the balance coming from international markets, predominantly Europe and Australia.

Sports medicine generated 67 per cent of its revenue, 30 per cent from ENT and 3 per cent from other businesses.

''This is a compelling opportunity to add ArthroCare's technology and highly complementary products to further strengthen our sports medicine business. Together, we will be able to generate significant additional revenue from the more comprehensive portfolio, combined sales force and Smith & Nephew's global footprint,'' said, Olivier Bohuon, CEO of Smith & Nephew.

David Fitzgerald, president and CEO of ArthroCare, said, ''ArthroCare and Smith & Nephew know each other well from our licensing and supply arrangements, and this is a natural transaction for both companies.''

Smith & Nephew, Europe's biggest maker of artificial hips and knees, is a global medical technology business with leadership positions in orthopaedic reconstruction, advanced wound management, sports medicine and trauma.

With a market cap of $7.9 billion, the London-based company has a presence in more than 90 countries and generated sales of $4.1 billion in 2012.