Medical device giant Stryker (SYK, Financial) has reached an agreement to acquire Inari Medical (NARI, Financial) for $80 per share in an all-cash deal valued at $4.9 billion. This announcement sent NARI's shares soaring, while SYK experienced a slight decline following the merger news. Speculation about the acquisition intensified after reports indicated that SYK was close to finalizing the deal, pushing NARI's stock higher. Excluding recent gains, the purchase price reflects a significant 61% premium over last Friday’s unaffected price.

Although Stryker is not issuing new equity or debt for this acquisition, the high valuation for Inari Medical has raised some concerns among shareholders. Notably, Inari has reported four consecutive quarterly losses. Based on Inari's fiscal year 2024 revenue guidance of $601.5-$604.5 million, Stryker is paying approximately 8.1 times the expected FY24 sales. For comparison, Inari's competitor, Penumbra (PEN, Financial), had a trailing price-to-sales ratio of about 7 times before the merger news.

Despite the high price, Inari appears to be a strategic fit for Stryker.

• Inari, also a medical device company, specializes in products for deep vein thrombosis (DVT) and pulmonary embolisms (PE), which complement Stryker's neurotechnology business focused on stroke treatment. This acquisition significantly expands Stryker's total addressable market, as venous thromboembolism affects up to 900,000 people annually in the U.S.
• High costs have impacted Inari's profitability, with a 34% increase in operating expenses in Q3. However, Inari's revenue growth has been strong, consistently in the low-20% range over the past four quarters. The FY24 guidance suggests a continuation of this trend, with a projected 21.5% growth for Q4. Stryker is likely to achieve cost synergies by integrating the smaller Inari into its operations.
• The acquisition offers Stryker an additional growth catalyst alongside recent platform launches. The company plans to introduce the Pangea Plating system in its Orthopedics segment later this year, and the LIFEPAK 35 defibrillator and monitor is gaining traction, with sales beginning to increase.

Overall, Inari Medical is a strategic acquisition for Stryker. While more details on the financial impact of the deal would have been appreciated, Stryker plans to provide insights into the expected effects on 2025 financial results during the Q4 earnings call on January 28.