Dive Brief:
- Zimmer Biomet has agreed to buy Paragon 28, an orthopedics company focused on foot and ankle implants, for an equity value of approximately $1.1 billion.
- Zimmer will purchase all outstanding shares of Paragon 28 for $13 per share, according to the Tuesday announcement. The amount is a slight premium over Paragon’s Tuesday closing price of $12; however, its shares fell below $5 as recently as October. The deal is expected to close in the first half of 2025.
- Needham analysts, in a Wednesday note to investors, wrote they have viewed Paragon as a potential acquisition target for a long time and were “surprised by the small premium that [Zimmer] is paying.” The analysts expect Zimmer to pull off more acquisitions, potentially outside of orthopedics.
Dive Insight:
Zimmer’s proposal is the latest development in a flare of orthopedics M&A. Stryker said Tuesday that it plans to sell its spinal implant business. The company also kicked off medtech spending this year with its planned $4.9 billion acquisition of Inari Medical.
If finalized, Zimmer will acquire a company growing sales by nearly 20%. Paragon estimates 2024 sales of up to $256.2 million, representing year-over-year growth of approximately 18%. After bringing in between $60 million and $62 million in recent quarters, Paragon expects revenue of nearly $72 million in the fourth quarter.
CEO Ivan Tornos said the acquisition allows Zimmer to expand beyond core orthopedics into the more specialized ankle and foot segment and creates “cross-selling opportunities in the rapidly growing [Ambulatory Surgery Center] space." Zimmer pegged the ankle and foot market at about $5 billion.
Needham analysts said Paragon is unique in the foot and ankle space because it offers a wide range of products, whereas its competitors are smaller, single-product companies.
“[Paragon] offers customers a one-stop shop with virtually every implant that they need,” the analysts wrote. “And compared to large, diversified competitors, we believe that [Paragon] offers customers more innovative products, superior training programs, and better service.”
J.P. Morgan analysts were similarly positive of the purchase, writing in a note Tuesday that Paragon makes “good strategic sense given Zimmer plans to keep the salesforce and leadership intact, we can envision some sales synergies, the portfolios are complementary, and there’s minimal product overlap today.”
The agreement includes a non-tradeable contingent value right for Paragon shareholders, which allows them to receive up to $1 per share in cash if Paragon’s net sales range from $346 million to $361 million in Zimmer’s fiscal 2026. The payment amount will be based on where sales land in that range.
Zimmer said the acquisition is expected to be about 3% dilutive to adjusted earnings per share this year, about 1% in 2026 and accretive within 24 months of the deal closing. Zimmer will provide more details during its fourth-quarter earnings call on Feb. 6.
The Paragon proposal comes months after Tornos told investors that no potential acquisitions had “jumped on us” and enticed Zimmer to act immediately. Now, analysts believe Zimmer may not be done spending.
Needham analysts expect Zimmer to “pursue additional acquisitions in higher-growth orthopedic subcategories like data/AI, robotics, sports medicine, and potentially even outside of orthopedics.
