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As large companies buy into the robotics and artificial intelligence revolution, M&A heats up

The high-profile $1.6 billion Medtronic-Mazor Robotics deal is just a sign of things to come in the red hot robotics space
Intuitive Surgical's da Vinci surgical robot system
Intuitive Surgical with its flagship da Vinci surgical robot is one of the large components of the ROBO index

Dublin-based medical device maker Medtronic PLC’s (NYSE:MDT) 1.6 billion buyout of Israel’s Mazor Robotics Ltd (NASDAQ:MZOR) is a prelude to hectic M&A activity in the robotics and artificial intelligence space, says Jeremie Capron, director of research at ROBO Global.

ROBO Global created the world’s first benchmark index to track global companies that focus on robotics, automation and artificial intelligence.

It was quick to spot Mazor Robotics as an investment idea way back in 2013 after the great robotic flameout of the 1980s and 1990s, when hundreds of robot products from numerous startups had failed.

Medtronic is now banking on Mazor to boost its technology for robotic-assisted spine surgeries.

“Mazor Robotics has been in the ROBO Global Robotics & Automation Index for almost five years, and was one of the first additions to our index back in 2013. We have a positive outlook for the future of Mazor as part of Medtronic,” Capron told Proactive Investors. 

BIG PICTURE: ROBO Global captures the high-octane growth of robotics and artificial intelligence

Since its inception in 2013, the ROBO Global Robotics & Automation Index has grown significantly. Over the last five years it has returned a compound annual 19%, comfortably outperforming other benchmarks. 

The creators of the ROBO index are bullish on medical robot companies.  

“Surgical robotics will continue to transform healthcare and we are still in the early stages. Mazor X has been well received by the spinal surgeon community and recent clinical studies have confirmed the numerous benefits of incorporating robotics technology in spine surgery procedures, including a significant reduction in the need for secondary back surgeries,” said Capron.

Mazor's core platform technology includes the Mazor X Robotic Guidance System, and the Renaissance Surgical-Guidance System, which are transforming spinal surgery from freehand procedures to accurate, guided procedures. By combining Medtronic's market-leading spine implants, navigation, and intra-operative imaging technology with Mazor's robotic-assisted surgery (RAS) systems, Medtronic intends to offer a “fully-integrated procedural solution” for surgical planning and execution.

The companies plan to showcase their technology integration at the upcoming North American Spine Society annual meeting in Los Angeles next week.

Medtronic expects the transaction to be “modestly dilutive” to its fiscal 2019 adjusted earnings per share. However, the device maker expects the acquisition to “generate a double-digit return on invested capital by year four, with an increasing contribution thereafter.”

M&A activity heating up

The growing demand for minimally invasive surgeries has catapulted the expansion of the market for surgical robots and there is rapid consolidation in the medtech space.

“We believe the M&A trend will continue not just in surgical robotics, but within the entire robotics, automation and artificial intelligence (RAAI) value chain spanning nearly every sector of the market,” said Capron.  

“It's an extremely active area of M&A and we see more action in the future as large companies like Medtronic look to acquire their way into the robotics and artificial intelligence revolution,” he added.

At least 28 robotics startups have raised money to the tune of $3.7 billion this year with over 11 acquisitions and two IPOs.

Rise of the robots 

Some of the key players in the robot universe are Intuitive Surgical Inc (NASDAQ:ISRG), Medtronic, Johnson & Johnson (NYSE:JNJ), Google Life Sciences, Stryker Corporation (NYSE: SYK), Transenterix Inc (NYSE:TRXC), Mazor Robotics, and Hansen Medical. Intuitive Surgical leads the surgical robotics market with its da Vinci surgical robot, that generates close to $3.5 billion in annual revenue and has a $64 billion market cap.

“We continue to see a long runway for growth for both large and small-cap surgical robotics companies. Intuitive Surgical enjoys significant competitive advantages in minimally invasive abdominal surgery,” said Capron.

Intuitive Surgical is also an early component of the ROBO index.

“We created the ROBO Global Robotics & Automation Index in an effort to provide investors turnkey access to the entire RAAI value chain, and are particularly bullish on the potential these technologies bring to the healthcare sector,” said Capron. “Surgical robotics is one of the most promising applications of these high-end technologies, but lab automation, healthcare research and DNA sequencing also have tremendous growth potential in healthcare.”

The ROBO index is used as a performance benchmark for funds and market growth and financial institutions use it as a basis for exchange-traded funds, also known as ETFs.

Investors can buy directly into the popular ROBO ETF based on the benchmark index comprised of 87 top robotics, automation and AI companies.

Contact Uttara Choudhury at [email protected]

Follow her on Twitter@UttaraProactive 

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