Stryker to Expand, Aims Surpass

Medical technologies major Stryker Corporation ( SYK - Analyst Report ) recently entered into a definitive agreement to buy privately-owned Surpass Medical, Ltd. for $135 million. The deal is expected to close in the fourth quarter of 2012, subject to certain terms and conditions.

Per the terms of the deal, Stryker plans to acquire Surpass through an all cash transaction of $100 million and has agreed to make an additional milestone payment of $35 million. Stryker exited the last reported second quarter of 2012 with cash and cash equivalents and marketable securities of $3,460 million.

The acquisition of Surpass is in accordance with Stryker’s strategy to expand its foothold into the fast-growing international markets via strategic acquisitions and new product launches. However, it is expected to have a neutral impact on Stryker’s 2012 earnings per share, excluding acquisition and integration-related expenses.

Headquartered in Tel Aviv, Israel, Surpass is a developer of pioneering flow diversion stents to treat brain aneurysms. Founded in 2005, the company has its manufacturing and research and development (R&D) facilities located at Miramar, Florida.

Surpass’ mainstay, the NeuroEndoGraft family of flow diverters, received CE Mark approval in August 2011 and is available in limited quantities outside the U.S. The company received Food and Drug Administration (FDA) approval to launch its pivotal Investigational Device Exemption (IDE) clinical trial in the fourth quarter of 2012.

Surpass’ unique product line will further bolster Stryker’s neurovascular business under the Neurotechnology and Spine division and its Complete Stroke Care portfolio. Earlier, in 2011, Stryker acquired the Neurovascular division of Boston Scientific Corporation ( BSX - Analyst Report ) as well as Concentric Medical, Inc. to build on its neurovascular offerings.

With a market-cap of $19.9 billion, Stryker is one of the world’s largest medical device companies operating in the global orthopedic market. The company is poised to grow on the back of a well-diversified product portfolio along with solid business fundamentals. However, end-market pressure in the Medsurg business and a weak orthopedic market continue to plague Stryker. Our Neutral recommendation on Stryker carries a short-term Zacks #3 Rank (Hold).