Saturday, September 27, 2003

Joint efforts in orthopedics To illustrate the principle that all industries tend toward oligopoly, look no further than the orthopedics business. Two major recent mergers and acquisitions between manufacturers in that field are according to a Wall Street Journal article "Orthopedic Firms Latch Together," (/3/2003) perhaps just the beginning of a rush to further consolidation in the industry. The motivations are classic. As the article states, "Two recent deals in the medical-devices sector are testament to how companies reckon beefing up their size will help them demand higher prices, and therefore better margins, for new hips, knee joints and other orthopedic gadgets which keep aging Westerners agile well into their twilight years." In the most notable case, U.S. orthopedics company Zimmer Holding acquired Swiss Centerpulse AG. The combined company will be the #1 orthopedics firm with over $2 billion in sales. This follows the move by Swiss firm Synthes-Stratec that bought Mathys, another Swiss firm. The two companies specialize in the devices used for repairing joints and bones. The new company will dominate globally in that category, with a bigger presence in the critical US market. As the WSJ article puts it: More deals are likely because orthopedics companies need a strong presence in the U.S., where they can typically achieve better margins. The emergence of new powerhouses, like Zimmer, puts rivals under pressure to grow because it is expensive to market orthopedic products to hospitals. We will see a continuing trend for M & A in the orthopedics business, because what matters is a global sales team and big marketing investments, something which smaller companies can't come up with,' said Patrick Laager, an analyst at Bank Sarasin. As demographics shift and people live longer, the market for orthopedics keeps growing too. Other key firms in the industry are #2 Johnson & Johnson, #3 Stryker, and #4 Biomet. Analysts see these companies looking to grow by takeover. Companies like Britain's Smith & Nephew and Finland's Instrumentarium are being looked at as takeover targets. 8:40:36 AM

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