Orthopedic major, Smith & Nephew plc (SNN) has entered into a definitive agreement to acquire assets of its Brazilian distributor, Pró Cirurgia Especializada (:PCE). PCE has been associated with the company for the last 30 years and has distributed its sports medicine, orthopedic reconstruction and trauma offerings in Brazil.
Although no financial detail of the transaction has been announced, we are encouraged by the company’s focus on strengthening its foothold in the emerging markets. The deal is expected to close in the second half of 2013.
We believe that this takeover will allow Smith & Nephew to have a direct control over its business in Brazil. The Emerging and International markets recorded underlying growth of 14% to $133 million in the fourth quarter of 2012.
In the recent past, the company had shifted its focus to its Advanced Wound Management franchise due to a clouded orthopedic space. Earlier, in Dec 2012, Smith & Nephew acquired Texas-based Healthpoint Biotherapeutics for $782 million in cash. The company considers this acquisition as an important step toward creating a strong portfolio in bioactives, the fastest growing area of advanced wound management.
However, with the current improvement in the orthopedic market along with gradual signs of stability in the U.S., the company is also trying to ramp up its Advanced Surgical Devices business as well, which was underperforming during the global economic downturn. Along with the PCE acquisition, the company recently launched two new products from this segment.
Smith & Nephew currently carries a Zacks Rank #3 (Hold). Although the company is growing at a healthy pace in the under-penetrated emerging markets, challenging scenario in Europe continues to be an overhang. Pricing pressure also remains a major headwind.
While we remain on the sidelines for Smith & Nephew, other stocks in the medical devices space such as Conceptus (CPTS), Hanger (HGR) and CareFusion (CFN) warrant a look. These stocks carry a Zacks Rank #2 (Buy).
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