Why I'm Torn Over MAKO Surgical's 80% Gain

MAKO Surgical just announced it will be acquired by Stryker Corporation for $30 per share, or more than 80% higher than yesterday's close. Here's why I'm disappointed.

Steve Symington
Steve Symington
Sep 25, 2013 at 1:43PM
Health Care

This morning, MAKO Surgical (UNKNOWN:MAKO.DL) announced a definitive agreement to be acquired by medical equipment specialist Stryker Corporation (NYSE:SYK) in an all-cash deal for approximately $1.65 billion, or $30 per share.

For those of you keeping track, yesterday MAKO stock closed at just over $16.17 per share. With the stock currently trading steady at around $29.50, MAKO investors have scored an incredible overnight gain of more than 80%.

I happen to be of those lucky investors. In fact, after today's pop, MAKO now easily stands alone as the single largest position in my personal portfolio.

And you know what? I'm a little upset.

Here's why I'm torn
Don't get me wrong; I'm happy for the gain and have no shortage of other promising stocks with which I'll be able to put that money to work.

What's more, I think Stryker is making a brilliant move by grabbing MAKO Surgical before the smaller company achieves sustained profitability -- something that MAKO management recently reiterated would have likely happened by the end of 2014.

With this in mind, I'm sure I'm not alone in saying today's news is bittersweet for patient MAKO shareholders who were hoping to realize much more significant gains over the long term.

After all, I was particularly pleased in July when MAKO's most recently quarterly results indicated the company seemed to be back on track, especially after the stock had twice plummeted nearly 40% following terrible earnings misses in May and July of last year. Even then, however, those drops also served as fantastic opportunities for me to further build my position.

And earlier this month, I even suggested that MAKO's future looked as bright as ever after CEO Maurice Ferre spoke at Morgan Stanley's 2013 Global Healthcare Conference -- his first official meeting with investors since early January -- highlighting the fact a full 25% of MAKO's business is now made up of hip replacement surgeries, compared to 17.6% last quarter.

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This, in turn, indicated significant sequential and year-over-year growth in hip procedures, which not only went a long way toward reassuring MAKO shareholders the company could meet its forward financial guidance, but also helps MAKO in its aspirations of achieving sustained profitability by increasing monthly per site system utilization from around seven procedures today to 10 by the end of next year.

I'm convinced that MAKO will ultimately reach that goal, but now it looks like it'll be as part of the $26 billion behemoth that is Stryker Corporation. As a result, and considering MAKO's growth as a percentage of Stryker's existing business is significantly smaller, I'll be reluctantly taking my profits as soon as The Motley Fool's trading restrictions allow.

So, farewell, MAKO Surgical. It was fun while it lasted.