Novadaq Technologies Inc. (NVDQ) Acquisition Could Spark a Bidding War

Yesterday, Novadaq Technologies Inc.(NASDAQ:NVDQ) shares skyrocketed 95% after the company announced it entered an ultimate agreement with Stryker Corp., who committed to acquire every outstanding NVDQ shares at the price of $11.75 each, implying a total equity value of nearly $701 million.

Believing “SYK could possibly accelerate NVDQ’s growth”, Canaccord Genuity top analyst Jason Mills reiterates a Buy rating listing a price target of $10, which represents a downside of approximately 14% compared to where the shares last closed.

“We see this deal as a logical exit for the company, which we have criticized lately for poor management execution and equivocal capital sales strategy. Following a material Q4 miss, which largely stemmed from the firm’s abrupt shift in capital selling strategy, we hypothesized that management/BOD was motivated to fix underlying issues at the firm and prioritize driving recurring revenue streams, ultimately positioning the firm as an attractive M&A target. We continue to believe NVDQ possesses superb fluorescent imaging and a promising tissue franchise, which should deliver real growth, not only in the near term, but for years to come. In sum, we think SYK is getting a solid asset in NVDQ, and expect SYK to be able to do a better job leveraging NVDQ’s proprietary technology than NVDQ could have done on its own via SYK’s significantly larger endoscopic/MedSurg portfolio, larger sales team and selling prowess,” opines Mills.

However, the analyst sees the probability of a rival, such as Medtronic, Johnson & Johnson and Intuitive Surgical, making a higher bid than Stryker stronger than usual, “if not probable.” While this event is not very likely in the med-tech world, Mills finds Stryker’s termination fee of $21M “a bit low,” especially considering the great asset Novadaq holds, and expects one of the competitors to interrupt the deal with an offer that is more aggressive.

According to TipRanks, a financial engine that measures and ranks analysts’ and bloggers’ performance, top analyst Jason Mills is ranked #55 out of #4573 analysts. Mills has a 73% success rate and generates an annual yield of 18.9%. When recommending NVDQ, the analyst earns a 30.2% average profit on the stock.

TipRanks analytics show NVDQ as a Buy. Based on 5 analysts offering recommendations for this share, 2 issue a Buy and 3 maintain a Hold. The 12-month average price target stands at $11.39, making a nearly 3% downside from where the stock is currently trading.

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