Activist investor Cevian Capital has purchased a 5% stake in Smith+Nephew this week.
According to an SEC disclosure, the Swedish investment firm now has 5% of voting rights attached to the shares. Reuters reports that the new holding makes Cevian the second largest shareholder of London-based Smith+Nephew.
The orthopedic company’s performance has been marked by modest growth in recent years. Smith+Nephew’s stock (NYSE:SNN) grew 1.5% in 2023, according to a MassDevice analysis of the largest medtech companies’ stock performances. However, SNN shares have been down more than 37% over the past five years.
The revenue growth of S+N’s Orthopedics and Sports Medicine businesses has lagged behind that of many of the world’s largest orthopedic device companies.
“Smith & Nephew owns fundamentally attractive businesses in structurally growing markets, but the company has not generated shareholder value for many years,” Friederike Helfer, a partner at Cevian Capital, told Reuters.
Smith+Nephew has also had a few notable executive turnovers. CFO Anne-Françoise Nesmes announced nearly a year ago that she would step down during the second quarter of 2024 as the board searched externally for her replacement. The company also replaced its board chair, Roberto Quarta, with Rupert Soames in February 2023.
How Cevian creates change as an investor
Cevian Capital acquires significant minority ownership in public companies to advance long-term and sustainable value creation, according to the firm’s website. It was founded by Lars Förberg and Christer Gardell in 2002.
The investment firm says it specifically invests in companies with leading market positions, strong cashflows, benefits from robust long-term demand dynamics, and are overlooked, misunderstood or out of favor with investors.
“These companies usually have sound operational performance, though Cevian sees substantial room for improvement and value creation. In Cevian’s experience, this value-creation potential is typically not reflected in companies’ share prices,” the firm said on its website.
Cevian works with the boards and management teams of the companies it acquires an ownership stake in to advance initiatives that increase the company’s long-term competitiveness, profitability and sustainability. Often, that can include improving operations, corporate strategy, organizational structure, financial management, corporate governance and sustainability more broadly.
Smith+Nephew works toward its 12-point improvement plan
Smith+Nephew laid out a 12-point plan in 2022 to improve financial outcomes. At the time, the company said it aimed to transform itself with the plan, improve execution and drive strategy for growth. Actionable items included fixing orthopedics, improving productivity and accelerating wound management and sports medicine growth.
The company highlighted its innovation strategy earlier this year, driving higher growth and delivering a pipeline of new products. Its acquisition of CartiHeal, in particular, strengthened the company’s leadership in sports medicine and biological healing. CEO Deepak Nath cited the need to enhance U.S. reconstruction efforts, but he sees a clear improvement path for orthopedics.
“Cevian sees the potential to create significant long-term value by improving the operating performance of the company’s businesses. We have high expectations for the board and management to realize this potential,” Helfer said, Reuters reports.
