2017 GSM

So it will cost a couple of million and they're flying hundereds of people in from all over the world. But will we see or hear anything new?

 

No less than $2.5m, probably more. Heard last years was almost $3M.

We will hear turnaround continues, Phase 1 was People, Phase 2 is Products. SQ,SQ,SQ. Edge, Edge, Edge. Sell the whole bag.

Culture, check. Urgency, check and here to stay. Results, spotty at best. (Other R, respect, no chance). Trust, funny.

 

Hey did you hear about the new book that is being released? Its called How to mess up a company in 5 easy steps by CH;
1) Fire everyone except those that are responsible
2) Create a nice package for yourself and get approved by the board
3) Spend a lot of money on an acquisition that won't return the investment
4) Hire all of your old cronies
5) Repeat each year and change the theme from people to products

 

#1 - Absolutely. Also forgot to calculate the associated effect that those not fired can see that and put you so far behind the eight ball in terms of respect and trust.

#2 - Yes, but still not a wealth driver that folks of his ilk crave. This move was career resurrection as much as anything after his unceremonious end to his honestly generally positive Stryker career. SYK traded at $54.80 on his last day there, it's now at approx. $123. Conversely, CNMD traded at $42.09 on his 1st day and is now $44.57.

#3 - SQ is growing very nicely. Of course the problems are the acq price and it's only about 9% of the whole company making it hard to move the overall needle especially when the rest of AS business is tanking and eating in to that positive effect.

#4 - Used to be "FOG" for Friends of Gene. Should be no surprise to anyone that it's now a CH Friends and Family Plan. That's just the way it is.

#5 - CH is not a dumb guy, he figured out pretty quickly that the "project" was going to be more than he bargained for and certainly more than he told his young pal with the money to get him into this seat. It refers back to your #2 and is the key for any potential wealth to come his way. The initial years of stock and bonus plans were negated by performance, however, if he can extend the clock on this game, each year that goes by and by using different equity tools, he can get potential $$ to him and friends and family even if they end up selling company at the levels the market was considering back in 2014.

 

Interesting.. a sales rep assured me that 510(k) clearance was expected in Q2 of this year. What on earth happened to this project?

 

That's sounding like an absolute reset..wow. No team means the division is stripped of talent.

If 4K is two years away, the IM8000 is the most current platform in the bag. They need innovation and an actual pipeline. It's a shame that there doesn't seem to be the appetite or support to match competitors' offerings.

 

So what exactly would an acquirer be buying for $1.25b? There's not much there. See you at the GSM!

 

Think of a company that could easily absorb the ortho business for market share and might like to continue to expand it's non ortho product offering. Think of a second company who could easily absorb all the non ortho products but would like to expand it's recent entree into the ortho space.

 

Companies have had years to look at ConMed. They've all taken a pass. But perhaps we're just not thinking hard enough. What are the two companies you think have interest?

 

As I am quite sure your aware, to do a deal it takes both a buyer and a seller. Go back and read the articles from when VOCE made it's run. Our Board didn't say it had no buyers, it said that interested parties were not willing to pay enough. Which translates to "we are not interested in selling." And since then there have been 2.5 more years of missed expectations. Your question is irrelevant as long as the current board is allowed to say "we are not interested in selling."

 

Don't assume that translation. As VOCE pointed out after we announced that the offers did not meet required value, the process was truncated which means it was rushed, relatively short and ended before a full representation of possible alternatives could be fleshed out. Why? Multiple factors. Several of the big ortho companies had or were in the process of monster deals themselves, CH and his activist investor benefactor who were Board members by then did not want to sell (would kill each of their agendas) and the pressure of an impending annual shareholder meeting with a proxy battle.

As a public company, we are "for sale" all the time. The question of the proper value is indeed key. In our case, there certainly are companies who would be interested in pieces, but not many interested in the whole company. Don't think we are able to sell off in a piece meal manner. So, you either have to find someone, large enough and willing to buy it all and then slice it up later to suit them or engineer a deal with multiple parties which is challenging to say the least. Naturally, price to the Board and cost to the buyer(s) also has to fall in line.

As for the Board being "allowed to say we are not interested in selling", they can always do that. Our previous Board did it for 30+ years as a public company. What changed that? Investor pressure.

 

Interesting dialogue today. Not the usual CF. One interesting observation is that the purchase of SQ may have actually prevented an acquisition from moving forward. Yes, SQ has propped up falling revenue figures. But prior to buying SQ, ConMed was an ortho acquisition target whose value lay in its Linvatec business. Since the SQ purchase, ConMed has muddied the waters. Meaning there are even fewer potential acquirers interested in both a sizable ortho business and a sizable general surgery business. For the big boys, a tuck in acquisition is hard enough to pull off. But a cross divisional play that requires sophisticated modelling and coordination? Forget about it.

 

Exactly. CH may not be as dumb as we thought.

 

The Your key phrase "but not many interested in buying the whole company" Who would be interested in buying the whole company? Orhto Products, Surgical Products, Crit Care Products, ER Products, SQ Products????

 

Always a fine line in determining how much, if any, credit to give to people for certain moves.

CNMD ended up built in a fashion where our diversity of products can act as a deterrent to possible acquirers. However, it's much more reasonable to deduce that it was not done with that result in mind. Rather, product lines and companies were acquired along the way based on what was available in the M&A market at the time we needed to do something to ward off pressures (smoke screens).

In the case of SQ, it's a bit similar from the perspective that CH needed to do something so he had something to talk about to the street. To be fair, we caught it at the right time from a market perspective. From what I understand, we had looked at it in the past, but passed as it still needed investment and had some hurdles in front of it. Knowing how our Corporate GM ruled the company, if we had acquired it back then, those investments would've been squelched and it would have turned into a dog. So, necessity drove it now and the keys are the high cost to acquire it which may severely limit our ability to buy anything else and the fact that it's such a small piece of the overall pie. Imagine the pressure on the CH friends and family team if they hadn't done this deal?

All above said, SQ was not a ward off acquisition. It was a necessity with a potential to add value in a "strategics" mindset. Make no mistake, we are pawns in this game. CH needs/wants a win which is defined as engineering "the turnaround" and then sale of the company which gets him the career reclamation and wealth he craves.

In terms of buyers, etc. SQ was actively for sale for years and years. Any of the other players out there could've bought it at any time and surely, if they wanted it bad enough, would've bought ahead of us. The big guys do not worry about sophisticated modeling and coordination efforts as they have teams to figure all of that out and do it regularly. Venture guys do all of this as well, but usually need a company that has a lot of expense to cut which we all know, we do not have as we were run so lean for so many years. We may be top heavy now with CH friends and family, but those guys didn't bite before CH built up the top team. Any interested smaller companies would need to find partners to work with. There's also some reason that CH has not yet sold off the GI and our old Patient Care products. Unless you work in those groups, there is no one in the company that wants or thinks we should be in them. While they probably do not get any resources, one would think that the play would be to dump them and use the proceeds to pay down debt from SQ and acquire more in Ortho and AS. Have not figured that one out!

Keep your heads down, become comfortable with the "new", er. "our" ConMed and ride the wave. Never a dull moment.

 

So what's the overall feeling been from the sales meeting?

 

Well........ Curt and Nate said the "Turnaround" is completed and now it's "Time to Win". As Curt said, "the turnaround was about getting the right people in place". That's funny because I personally think we were way better off two years ago with the marketing teams that were in place then, compared to now. Not to mention, it's a skeleton crew now compared to then. And how do you say a turnaround took place, when the company lost $70 million in organic revenue (which is over 10%) in the last 3 years? But boy Curt sure does hang in hat on the Surgiquest acquisition. Too bad it took that $250 purchase just to almost hit the revenue that we hit in 2013 without Surgiquest.