UPDATE: Jan. 7, 2022: While some analysts are backing Stryker's nearly $3 billion purchase of Vocera Communications, others are questioning the price as the deal values Vocera at about 11.5 times higher than 2022 revenue estimates.
J.P. Morgan analysts wrote that the roughly $3 billion price tag is "a reasonable valuation for an attractive double-digit growth acquisition with a track record of profitability and in an important and high growth end-market."
SVB Leerink analysts, however, are concerned about such a sizeable valuation.
"While the deal makes strategic sense to us, the valuation for this asset still gives us some pause, particularly given [Vocera's] single-digit pre-pandemic sales growth profile (8% in 2018, 0.5% in 2019) that, in our minds, does insert risk to the current mid-teens growth profile that [Stryker] believes is possible," the analysts wrote Thursday.
Wall Street may be split on the valuation nonetheless analysts are backing the deal strategically due to a growing, but relatively underpenetrated market and momentum Vocera has picked up amid the coronavirus pandemic.
Stryker projects Vocera to generate revenues between $226 million and $233 million in 2021, according to a Thursday presentation.
The company estimated the global digital care coordination and communication market to be nearing $1 billion and growing 15% annually. Stryker also cited global growth opportunities and projected a total addressable market increasing to as much as $5 billion.
Jefferies analysts have been bullish on Vocera shares recently, but they were surprised by a medtech company reaching outside of its traditional business.
"First, while we were not expecting any near-term M&A, we would have expected a potential acquirer to be a more software/technology focused company," the analysts wrote of Vocera. "Secondly, the valuation implied in the deal strikes us as being attractive. While [Vocera] has clearly had a lot of fundamental momentum, we believe some of that was driven by the recent pandemic, and one could debate the sustainability of some recent trends."
Future risks to the deal include Vocera backlogs clearing at a slower rate than anticipated and increased competition, according to Jefferies.
Stryker's stock price, which decreased less than 1% Thursday, was down nearly 3% Friday morning. Vocera's stock price closed up nearly 27% Thursday and was down slightly Friday.
- Stryker has agreed to acquire Vocera Communications for $2.97 billion, kicking off medtech M&A in the new year.
- Vocera specializes in communication and workflow platforms as well as software for healthcare providers such as hospitals, allowing for internal and patient-to-doctor communications to improve patient data sharing. The company also makes smart wearable devices for healthcare professionals as well as smartphone applications. The deal is expected to close in the first quarter, according to Stryker's Thursday announcement, and has a total enterprise value of $3.09 billion.
- BTIG analysts called the acquisition a "natural fit" despite being outside Stryker's more traditional medtech focus. "It complements SYK's Digital Healthcare offerings and further engenders SYK as a leader in patient safety tools that are used commonly throughout healthcare (particularly within hospitals)," the analysts wrote. "The combination of products such as VCRA's paired beds, ambulation equipment, and patient transport go hand-in-hand."
Stryker's early 2022 buy continues last year's medtech spending spree. While companies like Boston Scientific and Hologic doled out cash for multiple companies, Stryker was less active. In January 2021, the orthopaedics device maker announced it would acquire OrthoSensor for an undisclosed amount. Stryker also completed its acquisition of Gauss Surgical in September.
Despite the more recent small deals, the company had hinted larger deals may be on the horizon. Stryker CEO Kevin Lobo said during an October third quarter earnings call that the company would be looking to do more deals as debt was paid down and cash built up over last year.
"Now, we can start to look at slightly larger tuck-ins while we continue to pay down the debt. Valuations are very high, overall, but there's still a lot of targets," Lobo said. "We feel pretty confident that we'll be able to continue to run our M&A ... and find value-creating acquisitions for Stryker."
At the close of the third quarter, Styker had $2.6 billion in cash and marketable securities, according to the company.
Lobo said in the Thursday announcement that the Vocera acquisition will "help Stryker significantly accelerate our digital aspirations to improve the lives of caregivers and patients."
Vocera's products are currently used in over 2,300 healthcare facilities, including nearly 1,900 hospitals, according to the company. Vocera customers also include luxury hotels, schools, libraries and retail stores.
Stryker's stock price was down slightly when the market opened Thursday. Meanwhile, Vocera's was up by nearly 27%.
Analysts were mostly in agreement that the deal would be a positive for both companies.
William Blair analysts wrote that Vocera has stressed the need for improved communication systems for healthcare facilities over the course of the coronavirus pandemic, and this led to larger "enterprise-wide" deals and bookings for the company.
"Given this fact, we are not surprised that a strategic partner in the medical technology space would look to add exposure to the communications vertical," the analysts wrote. "The company has also steadily improved its margin profile over the years, which we believe further enhances Vocera's attractiveness to a strategic buyer, as the company has seen a greater mix of its revenues coming from software sales and recurring software subscriptions."
The analysts added that the strategic value to Stryker is on the sales and marketing side "as we would expect Stryker to leverage its existing salesforce and relationships across the healthcare landscape to continue to place Vocera products in the market."
The Vocera deal may be building a trend of companies reaching outside of their normal sectors and buying up companies that are more based on digital healthcare systems or data. For example, Oracle purchased electronic health records company Cerner for $28.3 billion in December.
Baird analyst Mike Polark wrote Tuesday — before the Stryker deal was announced — that the Cerner deal and Baxter's recent acquisition of Hillrom were "thematically positive" for Vocera, which posted solid stock market performance over the last several months.
Vocera's stock price was up 13% in December and 46% over the last three months of 2021, according to Baird.