For Better or For Worse: Globus and NuVasive Tie the Knot

Globus Medical and NuVasive caused quite the stir in the spine market after announcing merger plans in February.

Investors reacted harshly at first to the Globus-NuVasive deal and analysts were quick to point to past deals in the spine market that have had difficult integrations and considerable sales force disruptions due to cultural differences. So, it was a surprise that shareholders of both companies approved the merger with more than 99% voting in favor.

So now, for better or for worse, Globus and NuVasive have officially tied the knot, completing the $3 billion all-stock deal today.

The terms call for Globus to issue 0.75 shares of its class A common stock in exchange for each share of NuVasive common stock owned at closing. The merger makes Globus Medical the second largest player in the $13 billion spine market behind Medtronic. Given how competitive the space is (more than 100 players in the spine market), bigger may indeed be better for Globus, contrary to what history might suggest.

Even those who were skeptical about the deal at first have acknowledged there are clear benefits to scale in the spine market and Globus and NuVasive both had track records of being among the most innovative companies in the sector.

Steering clear of spine market integration storms

"The real work begins now in terms of integration," Ryan Zimmerman, a medtech analyst at BTIG, commented in an email to MD+DI.

A sales analysis BITG published in July to determine sales rep overlap between Globus and NuVasive, based on geography, indicates a base case revenue dis-synergy risk of $227.8 million, a bull case revenue dis-synergy risk of $60 million, and a bear case revenue dis-synergy risk of $419.5 million. Zimmerman noted in that report that Globus had previously provided a revenue dis-synergy estimate of -$101 million, but he thought that may be too low.

Only time will tell if Globus can steer clear of the integration storms that have plagued past mergers in the spine market, the company did have the foresight to start early on convincing sales reps not to jump ship.

"It's human nature in the state of change to have some discomfort," Globus Medical CEO Dan Scavilla said. "So, the best thing to do is communicate because we don't need to beg here with this. Keep in mind that we, as Globus and what we intend to do as the bigger company, pay strongly for our reps, and we've been doing that historically without change, unlike other companies."

Scavilla said in February that both companies were already having conversations with reps about the strengths of the combined portfolio as well as strong compensation.

"A rep that is long-term focused and wise can recognize that within 12 months, they're going to have at their fingertips the most powerful offering in the industry," Scavilla said on its fiscal fourth quarter earnings call in late February.

The company's goal is to maintain all its current sales reps, Scavilla said.

"We have enough space, enough growth, enough opportunity to do this," he said. "So, it's not really about a rep rationalization. And what we're signaling out to the market is we believe that this is a very favorable thing for the deal that will minimize disruption."