Analysts: Stryker might not be the only bidder for Novadaq

Stryker (NYSE:SYK) might not be the only firm in the running for Novadaq Technologies (TSE:NVDQ), according to analysts responding to Stryker’s $701 million bid for the Canadian fluorescence imaging company.

Mississauga, Ontario-based Novadaq yesterday agreed to the $11.75-per-share bid, which offers a 95.8% premium on NVDQ’s $6 closing price June 16. That agreement – and the high premium – was likely the result of a bidding process, according to Leerink Partners analysts Richard Newitter and Ravi Misra.

“We believe there was a competitive process for the asset, and the deal price likely reflects this on some level,” Newitter and Misra wrote yesterday in a note to investors.

And Canaccord Genuity analyst Jason Mills said the terms of the deal (a relatively low $21 million termination fee and a “right to match” provision) indicate that other medtech players like Medtronic (NYSE:MDT), Johnson & Johnson (NYSE:JNJ) or Intuitive Surgical (NSDQ:ISRG) could emerge as Novadaq suitors.

“While competitive bids are usually low probability in medtech, we think the potential is a bit higher in this case, as we believe the NVDQ asset would fit very well strategically within any of the aforementioned companies,” Mills wrote.

Newitter and Misra noted that Intuitive worked with Novadaq to integrate the Spy technology into its Firefly imaging system.

“This collaboration runs through 2021 and we do not expect SYK’s acquisition of NVDQ to impact this agreement/collaboration,” they wrote.

The expected 3¢-to-5¢ dilution to adjusted earnings per share this year could be topped, Newitter and Misra added, “given SYK’s stringent M&A criteria (ROIC>[weighted average cost of capital] within 3 years).”

“[W]e think it’s highly likely the company will remain focused on achieving (possibly beating) communicated accretion targets. We caught up with mgmt who noted to us that it views the technology as being transformative to the endoscopic division in the same way that Mako (acquired in 2012) was transformative to the orthopedic division,” they wrote.

“In our view, this is a quintessential SYK M&A transaction. The company has completed over 50 deals in the last decade ranging from between few hundred million to multibillion dollar transactions. Many of these deals have had similar characteristics – i.e., top-line growth acceleration prospects via a new product lines or adjacencies, slight near-term dilution and accretive within 1-2 years. We believe NVDQ falls into this genre. As well, the deal further validates the advanced visualization segment, which is an area on which other companies in our universe have increasingly been focused and successfully targeting (i.e. ISRG [OP]) or beginning to target (i.e. IVTY [OP]) through partnerships and/or internal development initiatives,” Newitter and Misra wrote.

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