Zimmer Biomet
(NYSE: ZBH)
is making a significant play in the foot and ankle treatment space, announcing it will spend $1.2 billion to acquire Paragon 28 (NYSE: FNA).
Established in 2010, Paragon 28 has a wide suite of surgical offerings and product systems spanning all major foot and ankle segments, including fracture and trauma, deformity correction and joint replacement.
“This proposed transaction further diversifies Zimmer Biomet’s portfolio outside of core orthopedics and positions us well in one of the highest growth specialized segments in musculoskeletal care, while creating cross-selling opportunities in the rapidly growing [ambulatory surgery center] space,” Zimmer Biomet CEO Ivan Tornos said in a news release out after market close yesterday.
“Paragon 28’s broad and innovative foot and ankle portfolio, robust product pipeline and dedicated and highly trained sales force, combined with Zimmer Biomet’s global reach and capabilities, will uniquely position us to address the unmet patient needs of this highly complex anatomy.”
Paragon 28 CEO Albert DaCosta sees the purchase as a tremendous opportunity to advance the company’s mission to continue to deliver groundbreaking solutions in the foot and ankle segment.
Analysts to have a mixed reaction to Zimmer Biomet making the deal
Zimmer Biomet officials said they saw the deal — expected to close in the first half of 2025 — as a revenue growth accelerant. They noted that Paragon 28 expects to report 2024 revenue in the range of $255.9 to $256.2 million, representing 18.2% to 18.4% growth.
The ortho device giant has also enjoyed a string of recent regulatory wins: FDA nods for a stemless shoulder system, a new total knee component, and a cementless partial knee — plus a CE mark for its Persona Revision Knee system.
However, Mike Matson, senior research analyst at Needham & Co, was not as enthusiastic, while noting the potential for more M&A deals to come. He expected the deal would be slightly dilutive to Zimmer Biomet’s EPS and moderately accretive to revenue growth.
Matson said in his research report: “We view this deal as another step in ZBH’s portfolio management efforts and expect to see it pursue additional acquisitions in higher-growth orthopedic subcategories like data/AI, robotics, sports medicine, and potentially even outside of orthopedics. While we are encouraged by the acquisition, we expect below-peer EPS growth in 2025 and maintain our Hold rating.”
Ryan Zimmerman and Iseult McMahon at BTIG have a Buy rating on ZBH. They saw positives in the deal, including moving Zimmer Biomet deeper into the foot and ankle space and providing it with a more comprehensive ASC offering. However, they also expected the merger to include challenges such as the need to retain top talent among Paragon 28’s 1,099-strong salesforce and the need to continue to invest to stay competitive.
ZBH shares were down slightly to $111.50 apiece by midday trading on the news. (The S&P 500 was also down slightly.) FNA shares were up more than 8% to $13.02.
