Symmetry Snaps up Codman Unit (JNJ) (SMA) (SYK) (ZMH)

Zacks

Symmetry Medical (SMA), which supplies instruments to orthopedic devices makers, reported that it has struck a definitive agreement to purchase the surgical instruments unit of Codman & Shurtleff Inc. ("Codman").

Codman, a part of Johnson & Johnson’s (JNJ) DePuy family of companies, makes devices for neurological disorders. Its leading brands include the BOOKWALTER retractor systems, OPTI-LENGTH extended length surgical instruments, QUAD-LOCK sterilization container systems and CLASSIC PLUS and CLASSIC surgical instruments.

Under the deal terms, Symmetry will buy the surgical instruments business of Codman for $165 million in cash. Codman will offer transitional services (including administrative and distributional support) to Symmetry for a period of time following the deal closure.

The deal encompasses Codman’s reusable stainless steel and titanium surgical hand-held instruments and retractor systems, sterile disposable surgical products and sterilization containers, which are used in various surgeries.

Symmetry plans to fund the acquisition through an amendment to its Senior Secured Credit Facility and the issuance of senior subordinated notes worth $65 million. The transaction, which is subject to customary closing condition and government clearances, is expected to consummate by end 2011.

Following the acquisition, the surgical instrument portfolio will be integrated into Symmetry’s fully-owned unit Specialty Surgical Instrumentation ("SSI"), resulting in a business worth more than $100 million in annual sales. The combined business will be renamed “Symmetry Surgical” and will be located in Nashville, Tennessee. Besides diversifying its revenue base, the acquisition enables Symmetry to broaden its global presence.

Symmetry is the largest OEM provider of orthopedic implants and instruments to orthopedic devices manufacturers. Its major customers include Johnson & Johnson’s DePuy, Stryker (SYK) and Zimmer Holdings (ZMH).

Symmetry Medical’s “Total Solutions” approach has differentiated it from the rivals and provided a substantial growth opportunity. Most of its customers are expanding outsourcing, realizing the benefits of a “One-stop shop” solution that allows them to focus their efforts on marketing and R&D.

Symmetry is investing in revamping its management structure and enhancing customer collaboration, which should support growth. Moreover, the company should benefit from higher demand for its solutions as its major customers ramp up spending and accelerate product launches.

However, Symmetry still faces price and procedure volume pressure on the orthopedic front. Also, the company’s high spending may continue to weigh on its bottom line. Currently we are Neutral on Symmetry Medical. The stock retains a Zacks #4 Rank, which translates into a short-term “Sell” recommendation.

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