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Why Novadaq Technologies Inc. Skyrocketed Yesterday

By Brian Feroldi - Jun 20, 2017 at 9:52AM

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Shares nearly double after news breaks that the company has accepted a buyout offer.

What happened

Shares of Novadaq Technologies (NASDAQ: NVDQ), a company focused on imaging products used during surgery, nearly doubled in early morning trading on Monday after the company announced that it has agreed to be acquired by Stryker ( SYK 0.28% ).

So what

Novadaq has agreed to sell itself to Stryker for $701 million in cash, or $11.75 per share. That represents a 96% premium over Novadaq's closing price on Friday.

Businessmen shaking hands and exchanging money.

Image source: Getty Images.

Novadaq's CEO Rick Mangat offered up the following commentary on this deal:

"I am proud of the impact our SPY and PINPOINT technology has made throughout the world in breast reconstruction and colorectal surgery, as well as other minimally invasive applications, and look forward to the additional progress we can make as part of Stryker's organization."

Timothy Scannell, Stryker's Group President of MedSurg and NeuroTechnology, said the following:

"Novadaq's unique, innovative technology complements our advanced imaging portfolio and expands our product offerings into open and plastic reconstructive surgery. Their innovative technology can reduce post-procedure complication rates and the cost of care for a broad variety of surgical treatments."

A special meeting of Novadaq's shareholders is expected to be held in early August to vote on whether or not to move forward with this deal. Two-thirds of Novadaq's shareholders must give this transaction the thumbs up in order for it to be completed. That seems like a formality at this point since Novadaq's board of directions have unanimously determined that this takeover is in the best interests of shareholders.

The transaction is expected to close in the third quarter.

Now what

Since Novadaq is still burning through capital each quarter this transaction is expected to be mildly dilutive to Stryker's earnings in 2017. However, the impact is projected to be so small that the company is still maintaining its full year guidance range of $6.35 to $6.45 in adjusted earnings per share. Meanwhile, the takeover is expected to be neutral in 2018 and is expected to be accretive thereafter. 

Overall, this deal looks like a good deal for both parties. Novadaq's investors get to earn a healthy premium on their shares while Stryker will get its hands on the company's fast-growing fluorescence imaging products. 

With Novadaq's stock currently trading within a few pennies of its buyout price, it is probably a good idea for shareholders to sell now and put that money to work in other stocks that hold long-term upside potential.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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