Signature Series: To Build or To Buy? Stryker's Thesis for AI, Robotics, and Growth | LSI USA '25

Emily West  0:00  
Okay, great. Well, thanks everyone for being here. We're going to jump right in. I think topic here is to build or to buy, and so we're going to get Spencer's insights here of how they approach their M and A strategy. So to start, I think we all have kind of observed M and A has been ramping up for Stryker, billion and a half plus M and A last year, 5 billion plus to start the year off with Inari. So the key question, how should we think about M and A going forward for Stryker?

Spencer Stiles  0:34  
Thanks, Emily. You know, before I go into answering the question, maybe I'll just share a little context for background. So I've been with Stryker for about 26 and a half years or so in a variety of different commercial leadership roles. Once upon a time, was in marketing management, sales management, these type of roles. And we've been really fortunate to utilize M and A as a source for growth. And so it's been a great recipe for us, and that's accelerated and decelerated depending on cost of capital and the environment and interest rates and things like this. And I think over the period of the pandemic, we did, you know, pump the brakes a little, pay down some debt. We had bought right medical Stryker's largest acquisition at the time, about five and a half billion dollars. And we were really intentional to say, we need to pay some of that debt down and build up the the piggy bank again to go after more deals. And coming out of the pandemic, we saw interest rates go up. But, you know, the environment has gotten more competitive again, and so we've tried to be really intentional to say, let's go out and turn back on the M and a machine with more aggression. And we exemplify that in 2024 and it's starting to build, and some of the things that we've done in early 25 were closed on, like the NRA acquisition in 25 so it's alive and well. I won't share all the trade secrets of what's next, but you can imagine it remains a key aspect to our long term growth strategy, and we're really fortunate that we built up a little bit of a muscle here in terms of assessment, understanding the right fit culturally. But then at the same time, integrations have become more and more important. So how do you make sure after you acquire the company that we're really getting the value out of it in the right way, and preserving, quite frankly, why you bought that organization, and maybe that's as important as anything. You know, we're buying these assets because we love the product, we love the people, we love the growth. So how do you, how do you keep that sacred? And, you know, sprinkle in Stryker gold, and I the gold word is, you know, the brand of our color, etc. But it's a little bit to to show that that's the way we want to shape it as well. So I think, you know, the future will remain filled with M and A. It'll be a key part of our strategy for growth. Maybe one other, just context, it's sort of fascinating to see our company is a completely different shape and size and a decade ago. And so the kind of deals we look at now, and even when we think about a tuck in, a tuck in, might be, you know, deploying $5 billion for a peripheral vascular company like an Ari that's more of a talking deal, if you can believe it. Well, 10 years ago, that would have been a bit more of a significant deal, maybe even transformational. Now, it's a absolutely critical deal to build out an adjacency, but it has a little different economic profile in the grand scheme of Stryker and maybe one of our challenges in that state is the growth that's expected, you know, well, you know, as a $20 billion plus company growing double digits at the moment, that's that's a tough order to find assets that can be accretive and bring that value. So expect more of it. But we have to be really thoughtful about what type of deals that we're doing and how those fit into the broader portfolio. Yeah.

Emily West  3:42  
And then, you know, one thing I think that's unique is how Stryker actually approaches M and A. So how are you kind of structured your BD team? How do you go out and find opportunities? Maybe you can touch a little bit about, you know, your central BD organization versus what you do within some of the

Spencer Stiles  3:58  
businesses. You bet Emily I represent a whole host of really smart, thoughtful, hard working people that do this every day, and so maybe I just get the luxury of talking a little bit about the model. But we started a long time ago with fierce decentralization at Stryker, the business units were set up even where business unit X would compete with business unit y, maybe more so than they were competing with the competition that wasn't ideal. It was really effective in our early days, as I'd say, small to mid cap. But as we've grown, we've realized we have to get value out of working together. And then the question is, how do you keep that specialization? How do you keep that spirit of really understanding customer needs, market trends and relationships and connections in those spaces, yet bring some scalability, common practices, best practices for fit, culture, scalability, etc, etc. And I think we found a pretty good place. So our model, as it extends today, is. We still have this decentralization, this specialization, and in each of these business units, roughly 22 right now, operating business units, they all have specialized M and A, r, d, sales, marketing, and that includes upstream marketing focused on exactly what that market needs. What's really powerful about that we have deep relationships of understanding trends, deep relationships with customers, and maybe is important the M and A Realm, deep relationships in companies that are working on innovation in that space, that service very well, where we built, probably additional competencies in the center. We've always had a small and it's still relatively small for the scale of our company, but mighty and impactful, centralized BD team at corporate in the center. It's fortunate enough to report in to me. It's led by a gentleman by the name of Bryan Zanko. Has been in the industry for a couple of decades. One of the great understudies in that world, who's been in one of our divisions, leading it, and is now in the center is Kris Terry. He's in the room with us today, and they're looking at both deals that might make sense for broader striker, because they don't fit in one of those 22 that might be part of their job. It's also part of their job to go, Well, hold on, if we're going to buy something in this space, there is some value here to connect into these other parts of Stryker, there's potential overlap synergies, R and D, marketing, go to market, sales, et cetera. And so having both those teams working hand in hand is really powerful. But still, the magic of what we're able to do is these rich, deep relationships. Specialize in a market. And marketplace we have somebody else, Dr Adam wollowicks Here in our trauma extremities business, for example, he wakes up every day, and in those we have three business units. He is thinking about, how do I find innovation companies value for those businesses and those general managers are leading on him each and every day to say, Help me find them. So he goes into meetings like this. He was at the orthopedic Academy in San Diego last week. He's all over the world meeting with various different companies and talking about their growth trajectory and what their future might look like, and how might Stryker play a part of that. So you put those together, and we've had a lot of success. The last thing that we've built up, it's probably the most recent, is our innovation, excellent. I'm sorry, our integration excellence, really a center of excellence around integration in the center. We used to have it all despaired in the businesses, one at a time, we do a deal, the people in that business or division would do the integration, they would learn from each other. We now it's much more centralized to say, hey, here's the playbook, here's the best practices. We still need the subject matter experts in the business, but to make sure that we're harvesting the value having that centralized group that can deploy resources different ways and really repeat and learn from previous integrations is very powerful. We even created a top 10, where there's five things on one side of the sheet that we get to decide at corporate in the center. And say, these are shells. You shall move to an ERP by this, you shall change a building by this, you know, whatever branding these type of things. There's another whole list on the other five. We give a lot of autonomy back to the business leader. And there's a few wrestling acts that happen on those sometimes maybe it's a critical R D person. We're like, look, we have to keep that person, that geography, that know how. And so that discussion might come up, and we usually defer back to the business to make that decision, but that's a mature process that's been built in our business. And every time you do this, it's like going to the gym. You're building up that muscle over and over and over. And we don't do them all perfectly. I mean, we do deals that don't work, we don't talk about them a lot, but, but we do deals that don't work, but you learn from those. And if we're doing our jobs and have the right vulnerability about it, or we're taking those learnings and we're building it back into that next integration and

Emily West  8:56  
best practice, yep, and you touched on it. You know, current business today growing double digits. But when we think about market growth, and you think about M and A opportunities, how does that kind of impact as you're thinking about different opportunities and market growth, and how that affects your attractiveness to a certain sector?

Spencer Stiles  9:15  
Yeah, I'll start with saying we're very fortunate at Stryker to have such strong performance. It's, you know, a bedrock of our culture. It's one of our four core values performance. And so we have great expectations and try to be a category leader or market leader in everything we're doing. That's a bit of the marketing strategy that being said, we're constantly looking at, how do we enter markets that have greater upside, either by natural growth rate, or there might be something in the makeup of the population, the demographics, something around the corner that's saying, Hey, this is going to be needed more and more and more. And how do we enter these we do very extensive adjacent reviews, and maybe I'll talk about a real life example that's happened most recently. You know, we announced the Cole. Closure of an Ari medical it's right up the street here in Irvine, a peripheral vascular company that we're just thrilled to welcome to the Stryker family, amazing technology, amazing employees, an amazing mission and an incredible culture, and lines up exactly with Making Healthcare Better, which is what we do. So you think about all these things, and you get so excited second you look at the, you know, the makeup of the economics of that market, strong margin profile, really good clinical outcomes, and, oh, by the way, strong, strong market growth, you know, mid to high single digits. This business is growing in the teens plus. So really exciting to think about. How could we bring that in? Well, we, we've been studying the peripheral vascular market, well, I don't know, probably for five plus years, and with rich intensity over the last 24 months, deep adjacency reviews, deep dives into the drivers, deep drive into an entry strategy, understanding the risks, the trade offs, and then you have to figure out what's the right Time. And this one worked out that there was a an opportunity to get involved, and we obviously executed on acquiring an Ari. But that wasn't something where we got the phone call and said, you know, Oh, geez. What do we think about this space? Well, we knew this space. We knew it to a tee. It also allows us then to expedite quickly in that process. We know what are going to be the drivers? What synergies would be required? What does an outlook look like? How could this bring value to other parts of Stryker? On that one, just for context, we are a market leader in the neurovascular space, so smaller coils and removal devices for clots in the brain. These are a little bigger in the lung and in the legs, but a lot of competency there, and even some know how that we think we can share over time. So that obviously has propelled our weighted average market growth rate, and we're really excited about that. At the same time, better to be lucky sometimes than good. We've been going through a portfolio assessment where we tried, with our core spine implant business for quite some time, to say, you know, are there other things we could do to this to help drive market growth and product growth for us, and we've, we haven't been able to see the results that we expected. What happened coming out of the pandemic? We said, Wow, the other Stryker businesses accelerated at a disproportionate rate due to volumes, due to innovation, due to, you know, some of the strategies we implemented during the pandemic, the spine business did not and at some point you look at and you go, Well, I can't just fight a plain capital there and feel good about it, knowing I could put in one of the other businesses to have greater acceleration and rates of return. So we made the decision, could there be a better owner and come up with some sort of relationship where we can still leverage the relationship in that portfolio, but somebody else can own it, invest in it, have a different risk profile than we can. And so we made the decision to sell our spine business. So when you think about that, in the market, growth rates now we're pulling out roughly the same size company as the one we just bought that wasn't growing to one that's growing in the teens that dramatically helps the outlook for Stryker, plus the end market itself of peripheral vascular is a much stronger growth rate. It all sounds simple in the rears, in hindsight, when you're going through all this stuff, it's complicated, but just imagine the peripheral vascular adjacency that we've been exploring. We have another six or seven with that much rich Intel understanding, passion that we're constantly assessing, maybe the last thing that maybe I'm most excited about and even relevant to the audience here, what's great about entering in these adjacencies, something like peripheral vascular you buy This core beach head asset in an amazing company like anari, that opens up another 10 doors and another 10 opportunities to look left to look right, to see how else we can propel that growth. I think it was, you know, only days after we announced the deal that I had a couple of other structured calls with really fascinating innovation companies and technologies in that space. And you go, wow, think about this. These are all areas we wouldn't have ever been able to tap into or think about, and that opens so much more growth for us in the future. So that's the real life example of looking at, how do we drive that continued growth? Oh, by the way, in a little bit to the topic of the session. You can't forget about what got you here, and so you have to continue to invest in the core and keep the organic machine going at the same time. Yep,

Emily West  14:29  
maybe a slightly different topic you touched on, it integration, and how you guys kind of approach integration. But one of the key questions is, when do you decide to fully fold in a company versus letting them kind of run on their own, and how to strike or make that decision across your various deals? Yeah, it's

Spencer Stiles  14:47  
a great discussion when we debate as leaders at the company of what's right and when, when do you apply additional pressure to force it to be more striker like, if you will? And when do you let the autonomy go a little longer? Our bias generally is more autonomy. Don't mess it up. We buy top class companies with growth trajectories that are strong, with great teams, they know what they're doing, and so we try to empower that and stay behind it. Yet we go there's probably again, I'll use the brand and color gold, some Stryker gold that we can sprinkle in on process, on maybe some commercial capabilities, potentially some additional connections network, and obviously some synergies that we can take out of it. The bigger the company, the more independence we usually offer, the smaller it is, it's pretty easy. Put it inside something, make it connect into the machine. Maybe it's more product based. We work through. You know, how do the people fit into this? But I don't, I wouldn't say there's an exact science. It's a bit more of a feel on the needs and what that business is like. We're even sensitive to think about the naming. So, as you can see with an Ari, it's still Stryker and Ari right now. You know there's, there's brand recognition in that. I say right now we'll be that for 20 years. I don't know. I sort of joke. I go all the way back, for those who are a little more aged in the business, like I am, if you go back to the how medica ostionics deal that Stryker did in 1999 there are still people in our business today that refer to themselves, you know, as a how medica employee, or an ostionics employee. You're like, dear goodness. This was 27 years ago, for God's sake. However, on some of our boxes, probably for legal it still says, like, how medica or I'm like, Oh my goodness. So some of that, some of that takes a lot of time. But there's not a there's not one right answer. It's a thoughtful process to see what that looks like and what's needed.

Emily West  16:47  
Yeah, makes sense. One thing that's really top of mind at this conference is AI. And a lot of companies products you've been looking at have AI, some aspect involved. How does that affect?

Spencer Stiles  16:57  
We buy companies with the name in it. Care ai. We bought one. Yeah, you put AI on anything. It gets pretty hot pretty quick. Look, I think AI is it's definitely a very exciting topic that's wildly dynamic right now. And understanding how artificial intelligence can create value in how we provide our products in care is really important, and how do you monetize that value? It might be one of the trickiest aspects. We've been really fortunate that we have some competency that's built organically, that's taken time in something like robotics, where we have some know how we've done some investment in companies and bought companies like Gao surgical, where the original concept is built on an algorithm that takes a picture of a sponge how much blood's on it, compares that to a massive amount of information that's in the data lake that has all these different sponges, as many as you could ever imagine, and compares that and gives more accuracy than any human eye or measuring tool could provide. So we got competency there, and built that up the recent announcement of care ai, that has a set of algorithms, or sort of eyes in the ICU, if you will, in the care environment. So our ability to look in and say, how do we take these technologies, how do we take these platforms, create value with the product or service itself? But then are there other competencies and learnings that we can share across the portfolio. Maybe the best example is when we bought right medical we have this amazing capability now in pre planning, in the surgical imaging side, it's called blueprint. It started in the shoulder, and the team that works on this built artificial intelligent algorithms that actually can predict the exact implant you need based off the scan that takes place in the shoulder. It's, it's incredible. You can even do sort of a help button, and you can now ask for what would the top 10 providers surgeons in the world do for this particular case, all by using AI. It's, it's remarkable. So that competency started in the shoulder, and right now we're looking at that for all these other disease states, starting with very natural ones, hips, knees, something called prophecy for the foot. And so some of that capability is now being built. I think the challenge for all of us is to make sure, again, that the technology is scalable, that the application is robust to the point that you can acquire it, integrate it, and it has a pathway for more. You know, we run you in a lot of companies that might have a circumstance based capability, but we need it to be able to grow and scale across the world. And so I think that's a really tricky thing. And then the monetization piece of all of it, and just what are the right models for this? And we have various versions and experiments pilots going on across some of our businesses are set up this way. For more of it. Others, I think we're in the early stages. So expect a lot more for AI, expect a lot more investment. H, I T has been a really big part of our growth trajectory. And ERI, we've spent a lot of money with. AI Vocera, some of these type of assets, and we're bullish, there's a lot more there to do, and really amazing technology that can help connect all these different products that we have at

Emily West  20:10  
Stryker. We touched on that a little bit. But when we think about leadership position for Stryker within each of your various product lines, how does kind of the competitive landscape, the leadership potential impact your M and A decisions?

Spencer Stiles  20:24  
Yeah, I would hopefully, you know, again, we're really grateful about our position. I don't want to come across as you know, too confident in this, but we don't spend a ton of time saying, Well, what if they did this? And what, you know, we're much more what's our strategy and what's critical for fulfilling our needs. You know we do well, you know, if we get a new deal, obviously, we assess what the competitive landscape is, and we'll talk about some of that in our adjacency reviews or our core deals we're looking at. But we're much more focused on that category leadership. How do we build that category leadership? How can we expand the market, once we are the category leaders, what more can we do clinically to provide a better outcome? Whatever that means for the for the pure good of doing good in healthcare. I mean this, that is our mission. Together with our customers. We're driven to make healthcare better, and we're very fortunate, we get to spend time thinking about that responsibility, so there's not as much war gaming as you might think. Maybe sometimes we carve out a little time to dream big and go, Well, what if this happened? And, you know, what if Apple did this? Or, you know, we do have some of these discussions, but we try to stay true to our own strategy, and that service pretty well. Yep,

Emily West  21:34  
I know we've talked a lot about M and A, but sometimes the best decision is to build, yeah, and to, you know, build within, invest within. So how does that decision get made? How do you kind of go about weighing M and A versus internal investment?

Spencer Stiles  21:49  
Yeah, it's a really important part of our strategy. And again, it goes back to the model of these seven big divisions, the 22 business units, those leaders are really empowered to think about their business and what's currently in their portfolio, what's in their R and D pipeline, and then to look at where would they augment that pipeline, with M and A, and how does that drive additional growth? It's interesting, you know, I would tell us, tell you, 10 years ago, when interest rates were much lower and money was, you know, almost free, you could probably take a few more risks, and your risk profile was a little different, and your results would have a bit more cushion in them. We're a little more selective today, and I think during the pandemic and the slowdown, maybe after 19, we were buoyed up by the success of a lot of M and A, we did in 1415, 1617, 1819, which was great. That allowed us to invest deeper in our organic pipelines with R and D and M and A, and allowed us to do that in an efficient manner. So we've built up those pipelines. And you hear us use other terms out there about the product introductions we have and sort of the cadence of these and that's been really remarkable, balancing it with the M and A, but it's driven again by by those general managers and those business leaders. I'll share one little interesting story, though. You know, a lot of times the great M and A starts with organic innovation. You know, people love to talk about Mako. Mako is one of, you know, the greatest success stories in musculoskeletal disease. It's had a transformational impact on the world of orthopedics, etc, etc, and we were super grateful for that opportunity. Yet when we bought Mako, what we don't often talk about, there was another internal project going on in organic musculoskeletal robot. It had a special name. It had a special group. They were chipping away at this. They were working like crazy, and they had a ton of passion that that was the robot that was going to show up on the market and win. And a lot of times what happens we will do this. We'll put money into the organic innovation. We'll chip away at it. We'll look, look, look, look, look, look, look, and then eventually go, All right, take your head up. What else is out there in the market? Ah, there's that one. And for whatever reason, in the case of Mako, we really like the IP per for portfolio related to the haptics, that's one of the greatest differentiators, the ability for the robot to know where it is in a plane at any time. That's a really strong differentiator. If we can take that and add it to our know how and put these together organic with inorganic. Watch out. Game over. And you've heard the stories, or some of you might have had a lot, a lot of naysayers when we first bought it, but it's proved out to be a great platform for us. But I think that's a really neat example of where you do the organic investment. And you know, we have another 20 of these going on in the company right now, and then you go, how can you augment that with the right acquisition to supercharge your position in the marketplace.

Emily West  24:41  
Yeah, it's all about being flexible and having that ability to I

Spencer Stiles  24:44  
think so. A lot of that is still driven though by that expertise in the division or the or the business unit. Interestingly, in that particular example, the world of orthopedics plays in a few different places, so there was a lot of gnashing of teams. Teeth as the different businesses that had products in that and there were some winners and losers, if you will. If you talk to some more employees, they go, I was on this side. I didn't feel as good. This side felt really great, because they went on. And sometimes we have to make those tough decisions, as tough as that can be.

Emily West  25:15  
Maybe last question at this conference, you know, there's a lot of founders, there's a lot of great companies out there that maybe would consider a strategic opportunity with Stryker down the line. What is one of kind of, like the missteps you see, perhaps, or advice you would give folks that are, you know, thinking about potential strategic opportunities with you guys?

Spencer Stiles  25:35  
Yeah, look, I, first off, want to thank every founder and all the all the teams that are working on startup technology. The belief of innovation is growth. Innovation is built on trust. This is the foundation of how we continue to solve big problems in healthcare period, and admittedly in big companies at times that can be hard when we do lots of amazing innovation. And if our 55,000 employees were here, I'd say the same to them. But we also rely on the startup world, on the incubators, on the dreamers, on those that are willing to take the risk. It's absolutely critical. So thank you. Keep it up. Stay at it, and companies like us depend on it. So I think it's really important. You know, if I was to give advice, I would say b be appropriately committed and persistent, but not, you know, annoying and and I think there's a fine line there, but I understand. I mean, you have great pride in what you're working on. You have amazing technology to talk about. It's figuring out the right avenue into a big company like Stryker. You know, I giggle at times. So Kevin Lobo, who's, you know, borderline, like, a famous human now all over the world, and at least in the world of med tech and a lot of industry, I mean, he'll send me a note. You still have somebody that he met in, you know, Japan last week, saying, Yeah, I've got this little thing that I, you know, start on my workbench, and I'd like to sell with a striker. Like, that's probably not the entry path to get that product sold. Kevin loves a great technology as much as all of us do, but we there's probably another way, and so it's just figuring that out. So I actually think coming to conferences like this and connecting with our people the right way, and having these discussions and then having realistic, pragmatic thoughts about how that relationship grows and works together. Another little nugget to be take feedback from the strategics. You know, ask that question, hey, what do you look for? What can we help? You know, What? What? What can I change in my business? We sometimes see it's gotten better, admittedly, in, I'd say, the last half a decade, you know, we need robust quality systems. We need robust compliance. We need robust processes and systems in the business. It's just there's too much remediation if that risk profile gets too far over here. But the best thing a founder can do is ask that question like, hey, what do you think about this? Are we building this the right way? Sometimes that's hard because it costs more money, takes more time, but that's a better end result if you're in the position of a big strategic

Emily West  28:00  
Yeah, great, yeah. Well, thank you so much for the time, and we appreciate everyone coming especially end of the day.

Spencer Stiles  28:05  
So yep, thanks so much everybody. Thanks for taking the time. Thanks, Emily. 

Emily West  28:18  
Thank you.