Why Smith & Nephew Is Shy of Megamergers

The British medical device giant's CEO recently shared some of his skepticism with The Financial Times. 

Qmed Staff

Smith & Nephew CEO Olivier Bohuon is not only wary of a merger with another huge medical device company, but considers such speculation as a distraction.

"It has disrupted our sales force because every day they are with [competitors] who are saying, 'By the way, we are going to buy you'," Bohuon told The Financial Times in an article published Sunday.

The comments come a year after on-and-off-again speculation last year that Stryker was interested in the company. The Financial Times speculates that Johnson & Johnson, with its tens of billions of dollars in cash reserves, might be interested in a deal, too.

But since his arrival as Smith & Nephew's CEO in 2011, Bohuon has been content for the British medical device maker to go on its own,. He's been redirecting the company's emphasis on hip and knee replacements toward innovations in one of its oldest businesses--wound care.

Talk of a possible merger has partially been so rampant because so many other huge medical device companies have been doing it. For example, the ortho space in which S&N competes saw the close this year of the $14 billion merger of Zimmer and Biomet into the new Zimmer Biomet.

Zimmer Biomet appears to have enjoyed some success post-merger. But Bohoun says, "Will they grow their top line? I bet it doesn't work."

Other huge medtech M&A deals of note this year include Medtronic's $48 billion acquisition of Covidien and BD's $12 billion merger with CareFusion. Johnson & Johnson recently announced that it had finished selling its Cordis cardiovascular division to Cardinal Health for $1.944 billion.

Some experts have pointed to Obamacare in the United States as the main driver of this trend. According to this line of thinking, healthcare reform favors big entities in that it incentivizes health providers to become more efficient, while taxing most medical devices at the same time. In the United Kingdom, the National Health Service has also been seeking ways to more efficiently manage health in populations. In such an environment, medical device companies may need to be larger to thrive.

Bohoun, however, prefers the focus S&N on organic growth in faster growing areas, as well as supplementing such growth with smaller acquisitions, such as the $1.5 billion takeover of Austin, TX-based sports medicine device maker ArthroCare Corp. last year.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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