5 Things to Know About the Zimmer-Biomet $13.4B Merger

Zimmer and Biomet, two leading orthopedic and spine device companies, have agreed to merge in a deal worth almost $13.4 billion.

The massive merger has huge implications across the healthcare sector. Here are five things hospital and health system professionals need to know about the Zimmer-Biomet deal.

1. The background. The boards of Zimmer and Biomet have approved the definitive merger agreement, in which Zimmer will acquire Biomet for $10.35 billion in cash and $3 billion in Zimmer stock. Zimmer will also assume all of Biomet's debt. The deal is expected to close in the first quarter of 2015. Zimmer shareholders will own 84 percent of the merged company, while Biomet shareholders will own 16 percent.

2. The new company. The new company will become one of the largest players in the musculoskeletal device sector. Together, Zimmer and Biomet focus on knee, hip, surgical, spine, dental, sports medicine, extremities and trauma devices. Combined revenues of Zimmer and Biomet from 2013 were about $7.8 billion. Zimmer and Biomet have their corporate headquarters in the same city — Warsaw, Ind. — but it's not clear if there will be layoffs as a result of the merger.

3. Impact on the health system. Executives said the deal will allow Zimmer to create more "innovative, cost-effective solutions to address the healthcare system's unmet needs," and "the combined company will be positioned to enhance the value chain for its stakeholders." The broader portfolio will also allow Zimmer to boost sales in more geographical regions, which may allow hospitals and physicians to view more implant offerings.

4. What it means for hospitals and other device companies. Hospitals have been aggressive in driving down prices of medical device implants. According to a study from the Advanced Medical Technology Association, the average prices hospitals paid for artificial hips and knees went down 23 percent and 17 percent, respectively, from 2007 to 2011. It's uncertain how consolidation in the device industry, like the Zimmer-Biomet deal and the Stryker-Mako Surgical deal, will affect pricing for hospitals, but there are still a plethora of device companies to choose from, hypothetically preventing large price increases. Hospitals and physicians also have leveraging power in that they are trying to reduce complications stemming from devices and implants — one of the 10 costliest reasons for Medicare readmissions — and device companies will have to continue to show they offer the highest-quality products.

5. The growing influence of private equity. Some of the biggest beneficiaries of the Zimmer-Biomet deal are private equity firms. Blackstone, Kohlberg Kravis Roberts and TPG bought Biomet for $11.3 billion in 2007, giving them billions in extra cash for a seven-year investment. Many of those same private equity firms continue to invest in other sectors of healthcare, particularly for-profit hospital chains like Nashville, Tenn.-based Hospital Corporation of America, Dallas-based Tenet Healthcare Corp. and Franklin, Tenn.-based IASIS Healthcare.

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