Globus Medical Inc. reported plans to buy Nuvasive Inc. in an all-stock transaction that will combine two leaders in the musculoskeletal industry into one of the largest companies in the spinal surgery market. Both boards gave the proposed deal their unanimous approval. While there are many companies in the spine market, the acquisition may still set off some alarms among regulators concerned about consolidation in the field.

Nuvasive shareholders will receive 0.75 Globus shares for each Nuvasive share held, producing an equity value of $3.1 billion and an estimated price of $57.72 per Nuvasive share, a premium of 26% on Nuvasive’s price of $47.44 at the market close on Feb. 9. The deal values are based on Globus Medical's closing share price of $76.96 on Feb. 9, which had dropped more than 19% to $62.91 by midday Thursday, following the announcement. Nuvasive’s stock, meanwhile, rose to $48.44 before settling back to $46.44 by midday.

At the close of the deal, slated for mid-2023, Nuvasive shareholders will own approximately 28% of the combined company.

Globus first approached Nuvasive about a deal in November 2021 that ultimately foundered, with analysts attributing difficulty in reaching a deal to conflicting corporate cultures, and challenges in consolidating companies in the spine market.

Analysts remain uncertain about the wisdom of the deal 15 months later. “For GMED, we see a bunch of challenges to the deal, namely differing cultures, salesforce and customer dislocation, and doubling down (essentially) in a slower growth category of orthopedics, which is the spine market," said Piper Sandler analyst Matt O'Brien. "The old adage that spine deals do not work is well known amongst investors for a reason, and we suspect the combined entity here will struggle as well."

Richard Newitter at Truist expected “initial investor skepticism—spine acquisitions have historically had a poor track record of salesforce turnover and dis-synergies. NUVA and GMED have different company cultures.” With other analysts, he noted that the main benefits appear to be scale related, with the opportunity to cut redundant costs through consolidation as opposed to improving the technology or significantly expanding the portfolio.

“We estimate the transaction creates a 20% share (and a clear #3 spine player), but ultimately spine end-markets are slower growing, and share gains/rev synergies in spine deals in theory makes sense but can be much tougher to get at in practice,” Newitter added.

Newitter may have underestimated the market share of the combined entity, and its challenges. “The combined transaction creates the #2 player in Spine behind Medtronic in the $13B+ global spinal market,” said Ryan Zimmerman of BTIG. “The obvious question is whether there are anti-trust issues in this transaction. We acknowledge that the spine market is highly competitive, with a number of companies (100+), but in the current environment we imagine it will weigh on investors' minds. Management could only say that the lawyers are reviewing everything at this point.”

Given the slow growth in spine, Zimmerman also questioned the focus on this segment when Globus has been diversifying into joint reconstruction robotics, trauma and imaging. “To double-down on Spine is somewhat surprising, in our view.”