DEFA14A: Zimmer Biomet to Acquire Paragon 28 for $1.1 Billion, Expanding Foot and Ankle Segment

Zimmer Biomet will acquire Paragon 28 for $13.00 per share in cash, plus a contingent value right, to expand its presence in the foot and ankle orthopedic segment.

Summary

• Zimmer Biomet has entered into a definitive agreement to acquire Paragon 28 for an upfront payment of $13.00 per share in cash.
• This corresponds to an equity value of approximately $1.1 billion and an enterprise value of approximately $1.2 billion.
• Paragon 28 shareholders will also receive a contingent value right (CVR) of up to $1.00 per share in cash if certain revenue milestones are achieved.
• The CVR will be payable if net sales exceed $346 million up to $361 million during Zimmer Biomet's fiscal year 2026.
• Paragon 28's net revenue for the full year of 2024 is expected to be in the range of $255.9 to $256.2 million, representing 18.2% to 18.4% growth over the prior year.
• The transaction is expected to close in the first half of 2025, subject to regulatory approvals and Paragon 28 stockholder approval.
• Zimmer Biomet expects the transaction to be approximately 3% dilutive to adjusted earnings per share in 2025 and about 1% dilutive in 2026, becoming accretive within 24 months of closing.
• Zimmer Biomet plans to fund the acquisition through a combination of cash on hand and debt financing.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the acquisition news, expected revenue growth, and expansion into a high-growth market. However, there's some dilution to EPS expected in the short term, which tempers the overall positive sentiment.

Positives

• The acquisition strengthens and expands Zimmer Biomet's offerings in the foot and ankle segment.
• It complements Zimmer Biomet's global footprint and infrastructure.
• The transaction is expected to accelerate Zimmer Biomet's weighted average market growth rate (WAMGR).
• It expedites penetration opportunities in the fast-growing ambulatory surgery center (ASC) space.
• Paragon 28 has an extensive suite of surgical offerings and product systems spanning all major foot and ankle segments.

Negatives

• The transaction is expected to be approximately 3% dilutive to Zimmer Biomet's adjusted earnings per share in 2025 and about 1% dilutive in 2026.
• The deal is subject to regulatory approvals and Paragon 28 stockholder approval, which introduces uncertainty.

Risks

• The transaction is subject to regulatory approvals and Paragon 28 stockholder approval, and may not close.
• Competing offers for Paragon 28 could emerge.
• The merger agreement could be terminated under certain circumstances, potentially requiring Paragon 28 to pay a termination fee.
• The anticipated benefits of the transaction may not be realized or may not be realized within the expected time period.
• The businesses may not be integrated successfully.
• The revenue milestone necessary for the payment of the contingent value rights may not be achieved.
• The transaction could disrupt business and operational relationships.
• The transaction could divert management's attention from ongoing business operations.
• The announcement or consummation of the transaction could negatively affect the market price of Paragon 28's common stock and its operating results.
• There is a risk of litigation, including shareholder litigation, and/or regulatory actions related to the transaction.

Future Outlook

Zimmer Biomet expects the transaction to immediately accelerate revenue growth and become accretive to adjusted earnings per share within 24 months of deal close.

Management Comments

• Ivan Tornos, President and Chief Executive Officer of Zimmer Biomet, stated that the transaction diversifies Zimmer Biomet's portfolio and positions them well in a high-growth segment.
• Albert DaCosta, Chairman and CEO of Paragon 28, said that joining Zimmer Biomet is an exciting new chapter and an opportunity to advance their mission.

Industry Context

This acquisition reflects a trend of larger medical device companies expanding into specialized, high-growth segments like foot and ankle orthopedics to diversify their portfolios and accelerate revenue growth.

Comparison to Industry Standards

• Stryker's acquisition of Wright Medical in 2020 for approximately $5.4 billion is a comparable transaction in the orthopedics space, demonstrating the value placed on specialized segments.
• The high-single-digit growth rate of the foot and ankle industry, as mentioned in the document, aligns with industry reports indicating strong demand for orthopedic solutions in this area.
• Other companies like Medtronic and Johnson & Johnson also have presence in the broader orthopedics market, but this acquisition positions Zimmer Biomet more specifically in the foot and ankle segment.

Stakeholder Impact

• Shareholders of Paragon 28 will receive $13.00 per share in cash, plus a potential CVR payment.
• The acquisition is expected to benefit patients through continued innovation in foot and ankle orthopedic solutions.
• Employees of Paragon 28 will become part of Zimmer Biomet.
• The combined company is expected to strengthen its position with customers and suppliers in the foot and ankle segment.

Next Steps

• Paragon 28 will file relevant materials with the SEC, including preliminary and definitive proxy statements.
• Paragon 28 stockholders will vote on the proposed transaction.
• The companies will seek required regulatory approvals.
• Zimmer Biomet will discuss the expected impacts to 2025 financial results on its upcoming fourth quarter 2024 earnings call.

Key Dates

Keywords

Zimmer Biomet, Paragon 28, acquisition, merger, foot and ankle, orthopedics, medical devices, revenue growth, contingent value right, regulatory approvals