Stryker buys NOVADAQ

22-JUN-17

Stryker has bought a small business called NOVADAQ, paying a massive premium, almost double the share price from Friday last. From the all time highs of 22.81 Dollars a share in March of 2014 however, it is half, the share price was 6.23 on Friday at the close. Of course, it is all relative. Still, the price tag is 11.75 Dollars a share, or 701 million Dollars. There is a break fee of 21 million Dollars, if the deal fails.

Mr. Market thinks that the deal will close, the current price is trading above the offer price .... in fact, Mr. Market thinks that there may well be someone else interested, if even marginally. Or the shorts closing out? According to Novadaq Technologies Inc Short Interest information from the NASDAQ website, at the end of May, there were 28 days current volume to cover short interest. i.e. it would take the shorts 28 days to buy back the shares at the daily average volume.

Forget that, what does NOVADAQ do and why would Stryker find this an interesting purchase? NOVADAQ has multiple technologies, including something called Spy Elite, that enables surgeons to make better decisions using imaging technology. Both in the actual surgical situation and assisting the healing, leading to quicker turnaround times for recovery and more importantly for all concerned, reducing unnecessary costs. The basics of it are as follows (I hope I am explaining it properly), when closing a skin flap, the surgeon needs to be sure that the skin won't die, or the skin that is being closed has superior blood flow. With this technology, they can ensure that there are steady blood flows and as such the necrosis rates are greatly reduced. I hope I understood that properly.

The procedures for these technologies are covered on the website, and include Breast Reconstruction, Cardiac Surgery, Colorectal Surgery, Laparoscopic Cholecystectomy, Limb Salvage and Diabetic Foot Ulcers. The Stryker release describes it more eloquently than I could ever: "NOVADAQ is a leading developer of fluorescence imaging technology that provides surgeons with visualization of blood flow in vessels, and related tissue perfusion in cardiac, cardiovascular, gastrointestinal, plastic, microsurgical, and reconstructive procedures."

Some of these technologies complement the existing Stryker portfolios, some are new. There are great cross sale opportunities across the existing portfolio. Whilst this is by no means a "big deal", it is a mere percent and a half of their market cap, this is the style the company follows. Find a great technology, buy it and roll it out on a bigger scale. All for the advancement of humanity. That is the kind of business that one wants to own! Profitable, cutting edge technology meets critical healthcare needs. We continue to accumulate and stay the course.