Welcome to today's conference call. My name is Corie, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Following the conference, we will conduct a question and answer session. During that time, participants will have the opportunity to ask one question and one follow-up question.
This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward looking statements. Factors that could cause actual results to differ materially are discussed in the company's recent filings with the SEC. Also, the discussions will include certain non GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8 ks filed today with the SEC.
I will now turn the call over to Mr. Kevin Lowow, Chairman and Chief Executive Officer. You may proceed, sir.
Thank you all for joining us today to discuss our definitive agreement to acquire Sage Products for $2,775,000,000 I would like to start by telling the Sage team how excited we are that they will be joining Stryker. The addition of Sage with their innovative and value added products is strategically aligned with Stryker's goal of partnering with our customers in order to make health care better. We are webcasting this call and have included a number of slides to help facilitate the discussion around this transaction. Joining me today are Tim Scannell, Group President of Med Surg and Neurotechnology Bill Jellison, our CFO Lonnie Carpenter, Group President, Global Quality and Operations Brad Saar, President, Medical and Catherine Owen, Vice President of Strategy and Investor Relations. I'll be turning the call over to Tim, who will provide further details regarding this exciting addition to the Stryker portfolio.
Bill will then offer some financial highlights, and I will provide some closing comments before opening the call to your Tim?
Thank you, Kevin. And on behalf of my colleagues at Stryker Medical and across the company, I'd like to tell the Sage Medical team that we look forward to welcoming them to Stryker. Strategically for Stryker, the acquisition of Sage complements Stryker Medical's portfolio of innovative and differentiated ICU and med surg products with disposables targeted at the reduction of never events. It also provides access to an important adjacent market that expands the division's offerings to our hospital customers, while also resulting in an improved mix of capital and disposable products for our medical division. Sage's approach to innovation focuses on demonstrating superior clinical outcomes, which underscore the benefits of their products and has driven customer adoption and loyalty.
Further, given Stryker Medical's strategy of targeting prevention, as evidenced by our existing power load costs, our in touch with ISO Liberum ICU bed, our Spirit Select low height bed and our integrated caregiver alert systems, the addition of Sage is highly complementary. In sum, we believe there are 5 key strategic benefits we gain with this acquisition. Number 1, we access segment leading and fast growing portfolio of innovative products with a proven history of success. Number 2, we acquire a balanced and broad product offering with clinically and financially validated outcomes data Number 3, the combination accelerates Medical's growth profile by accessing an adjacent market and results in a more balanced mix of disposable and capital offerings for the division. Number 4, the acquisition provides Medical with additional clinical sales capabilities.
And number 5, it deepens Medical's relationship with existing customers. With that as a backdrop, I'd ask you to focus on Slide number 5, which provides an overview of Sage's 4 key product segments. They include oral care, comfort brand, CHF pre op prep and Prevalon. As you see in the chart, each of these segments has products that specifically address hospital acquired conditions, thereby providing clinically proven benefits to both patients and caregivers. Given that each of these four segments has achieved sales approaching $100,000,000 or higher, you can see that Sage has a balanced portfolio of revenue drivers.
Over the time since its founding 45 years ago, Sage has become the market leading company dedicated to the prevention of hospital acquired conditions, including pressure ulcers, surgical site infections, patient handling and ventilator associated conditions. In 2015 alone, Sage impacted nearly 30,000,000 lives by helping to prevent avoidable and often devastating injuries and conditions. Of note, the cost to the health care system of hospital acquired conditions is staggering. Roughly $30,000,000,000 is spent annually to treat hospital acquired conditions in the United States alone. As captured on Slide 9, Sage's success has been driven by commitment to investing in R and D that has resulted in a long history of innovative new product introductions.
As a result, the company has been able to deliver superior financial results with a sales CAGR of roughly 15% since the late 1990s. It's important to note that Sage has developed unique and highly trusted brands with caregivers. These trusted brands resulted from the company's creation of new markets and product categories in patient infection control and preventive care. Sage's products are fundamental to the care of patients, and they are an essential part of nurses' daily patient interactions in hospital intensive care units and med of Sage's commitment to preventing hospital acquired conditions, their leading brands and their strong customer relationships, the company is number 1 in all of the segments it serves. In North America alone, Sage's products address a segment estimated at 1 $400,000,000 The company has a robust patent portfolio, and just as importantly, it has extensive and strong internal know how and R and D capabilities.
As detailed in Slide 8, the costs associated with hospital acquired conditions are staggering. Importantly, the company's solutions based portfolio is well aligned with CMS' initiatives against never events. Sage's products are highly cost effective and have been developed through intimate customer feedback. Moreover, each product line is supported by extensive clinical and economic research, highlighting improvements in outcomes associated with the use of the products. We have included a sampling of Sage's clinical research on Slide number 10, which underscores the value and proven efficacy of these products.
We are excited about the addition of Sage as Stryker and the capabilities it brings to our medical division and to the company overall. With that, I will now turn the call over to Bill.
Thanks, Tim. I would ask you to focus on Slide 11, which provides a summary of the planned acquisition of Sage for $2,775,000,000 which will be funded with both current cash and newly issued debt. The deal includes an anticipated future tax benefit, which expected to exceed $500,000,000 and to positively impact cash flows over approximately 15 years. However, it will have no impact on adjusted earnings per share. Sage has higher organic growth rates and gross margin rates modestly below Stryker's corporate average, making the financial profile of Sage highly attractive.
We are postponing any share repurchases for 2016. The acquisition of Sage is expected to close in the Q2 and will be approximately 0 point 16 full year adjusted EPS guidance, net of the impact from postponing our share repurchases. Also note that our global tax rate for the year is expected to increase to approximately 18% to 18.5% compared to the 17% to 17.5% rate provided in our original guidance for 2016. With that, I will now turn the call back to Kevin.
Thank you, Bill. We are excited about the opportunity provided to Stryker that will be realized with the acquisition of Sage. This deal is strategically aligned with our goals and will help Stryker drive organic sales growth at the high end of medtech. Our diversified and balanced product offering across a broad segment of medtech is a key competitive advantage and helps drive consistency in our results. And with the accretion outlined today, we are well positioned to realize leveraged earnings gains.
Combined, we believe these actions are aligned with our capital allocation strategy and will help optimize shareholder returns. Before we open the call to your questions, I would like to note that given scheduling challenges, most of us are in different locations. So I will act as a moderator to direct who will respond to your questions. I will now turn the call over to the operator to begin the Q and A. Operator?
Thank you. We will now begin the question and answer Your first comes from Mike Weinstein from JPMorgan. Mike, your line is open.
Good morning. Can you hear me okay?
Yes, we can.
Okay. I apologize. So first question is the 13% in 2015, that was all organic. And then can you just talk about the performance maybe over the prior few
years? Sure. Bill, do you want to handle that question, please?
Sure. Yes. That was organic, Mike. And the growth rates have been relatively consistent in kind of the low kind of double digit range for the last few years well too. And our expectation is that this transaction will be accretive to our top line organic earnings growth.
Sales will be classified as acquisition growth, still be included in our constant currency numbers, but not included in our organic growth numbers.
And Bill, can you just talk about the geographic makeup and a little bit about where the growth is coming from?
Sure. So as I mentioned on the impact with the tax rate, the tax rate is obviously higher and that's because the majority, the vast majority of all of their sales are in the U. S.
And is there maybe just talk a little bit about the opportunity outside the U. S?
Sure. I'll actually turn that to Jim.
Yes. As it was noted, the WUS raise into Europe, and the opportunity is very significant. Obviously, or as you might expect, a key part of our plan will be global expansion, and I think our medical division is very well poised to spearhead that.
And our next question comes from Bob Hopkins from Bank of America. Bob, your line is open.
Sure. Thanks for taking the question. Two questions. First for Kevin. Obviously, this seems like a good fit for the medical business.
But Kevin, could you just talk a little bit and then my financial question for Bill. Can you just give us thanks very much.
Sure. Thanks, Bob. So this is a very rare kind of company within medtech that's growing consistently organically, double digits, has a very strong market share positions. We've known them for a number of years and been tracking the company. And so us, we look at this like in much the same way as our instruments division.
It's a division that has these products that not everybody is aware of, but that provide tremendous value, have very high market shares, are very sticky with the customers and have very attractive financials on both the top line and the bottom line. So we see this as a fantastic fit within Stryker. We obviously look at many, many companies, and but we see this as a classic Stryker product. And they have a number of singles across their portfolio. So you don't see big sticker shock with the individual price points on items, but they provide tremendous value.
So this is one that's very attractive. We look, as you know, through many, many companies. We still have a very strong balance sheet. So this one obviously is a little higher priced than some of our other deals or more traditional deals, but one we feel will be very value creating. And the last point I'd add is that their management team is incredibly experienced.
They've been together for a long time, very capable, and we intend that management team to continue as we integrate the product the company into Stryker. So now I'll turn it over to Bill.
Sure. So Bob, from a return profile, we think that the transaction is very attractive for us in general. Obviously, the discount rates that we have on this is for the total transaction is over double digit. We've stated as well from an accretion perspective, we are expecting accretion in 2016. It will be accretive to adjusted EPS immediately upon closing.
So in the Q2, if the transaction does close at the beginning of the second quarter, we would expect it to be accretive already beginning in that period. And as we've mentioned before, it is accretive to both our top line organic sales growth level, especially as we move forward into 2017 when it will be classified as organic growth and it will continue to be accretive to our overall EPS growth.
And our next question comes from Rick Wise from Stifel. Rick, your line is open.
Good morning, everybody. Congratulations, Kevin. A couple of questions. Just maybe for you or for Tim, talk about integrating Sage. Is this just a total plug and play Or just as we think about folding Sage into whether it's manufacturing, sales, existing contracts, that how do we think about the integration?
Are complicated or simple?
Kevin, do you want me to take that? Yes, I don't hear Kevin, but go ahead. Rick, I believe it would be arguably more on the simple end of the continuum. This is not going to require integration of factories or complex integration of sales forces or anything of the like. I think you could fairly view it as more of a bolt on to our medical business.
There will be sales synergy opportunities in areas like contracting and just leads and overall glow of the product portfolio and so on. But in general, we will largely leave their sales force and the company alone, and obviously, we'll to bring them into compliance with our quality systems and compliance standards and what have you. But in general, it's going to be a relatively simple acquisition compared to some of the other big deals you see where you're working hard to integrate and rationalize product lines and sales forces.
Got you. And Kevin, just one follow-up for you. Just would you reflect a little bit for us about your thoughts about the implications for Stryker's portfolio and maybe what this might mean for future M and A? And obviously, this further reduces your exposure to the historical orthopedic market. Is this point in a strategic direction that we think about M and A activity for you over the next 1 to 2 years, you're going to be heading more toward this part of the world in terms of hospital products or surgical products or procedure related products?
Thank you.
Yes. Thanks, Rick. What I'd tell you is our strategy really hasn't changed. So I've been CEO a little more than 3 years and every deal that we've done has strengthened our category position. So whether it's Mako Atrossan or Colline for spine or Pivot for sports medicine or in this case Sage, which strengthens our medical division, We really like the spaces where we play in and we want to be very strong in our existing spaces.
And so we're very open. So if an orthopedic deal, it's not about trying to smooth things out overall for the company or to shift away from one of our segments. It's just that when companies come along, you have to evaluate them, you have to figure out if the valuation is going to work and if it's really going to cause us to become even a stronger leader within our divisions. So we're very open to deals across the broad spectrum of our company, and it does not signal any kind of strategic shift. So category leadership by division, and as each deal comes forward, we evaluate those against our financial hurdles and then determine whether that's the one to move forward.
So I wouldn't misread this as moving away. The next deal we do could be very well be in the implant side of the business or it may not. It just the inherent timing of business development is uncertain. And this one came along and we feel is a great addition. But it doesn't signal any strategic shift.
I think we've been very consistent. And frankly, even before I was CEO, we were pretty consistent in trying to strengthen ourselves. And I look at all of our businesses as being equally attractive for acquisition targets. It really just depends on the targets that are available.
And our next question comes from Kristen Stewart from Deutsche Bank. Kristen, your line is open.
Hi,
thanks for taking the question. I was just wondering if you could comment whether or not this was a competitive process? Catherine, you want to take that one? Quite
far quite far, but we typically don't go into details around who may or may not have been involved in terms of other parties.
Okay. And then is there any do you anticipate any sort of synergies down the road with the sustainability solutions? I know that had been a business that had looked quite robust in terms of its sales growth. It has been a little bit more modest of late, but it would seem to be something that you could go to hospitals with as a real value based solutions in terms of reducing costs overall. Do you think that you have some significant pull through by offering more of these kind of cost savings from a hospital infections approach as well as more of a reprocessing as well?
Tim, do you want to
take that question? They're kind of different divisions, but
They're both within Tim's portfolio. Yes, Tim, do you want to take that?
Yes. Kristen, it's a very good point and opportunity. I would tell you that as we looked at the deal, we did not target that as a key initial synergy, but it is a long term opportunity as we line up our divisions and we get into the C suite of hospitals to talk about savings both through reprocessing and through prevention. I think this will line up very, very well. The other frank reality is a lot of Sage's products are actually relatively low priced.
A lot of our reprocessing efforts have targeted more expensive items, where the economic value of our reprocessing and remanufacturing efforts kind of create more value. So it's a nice opportunity, but it's not a primary one.
And our next question comes from David Lewis from Morgan Stanley.
Just a few quick financial ones for and then a strategic question for Kevin. So Bill, just I wonder if you could give us a couple of details here, kind of three quick ones. Approximate Sage EBITDA margins on the tax benefit, how does that come in over the next 15 years? Is it straight line or more front end? And on synergies, is it a reasonable expectation for us to think about 10% of sales, which is kind of middle of the road, sorry, for device M and A?
So I think that, I think on the first one associated with just the overall kind of performance on the margins, we don't
really give out any specific margins for some of our individual
divisions, but I would say, specific margins for some of our individual divisions. But I would say, as I mentioned on the kind of the call upfront is that the margins are relatively close to the company's averages. And we would expect, especially as we bring this business into the company, we would expect that those will also improve slightly over time. And as far as the returns are concerned, I think that all of our transactions, we look at making sure that they're hitting our overall kind of hurdle rates that we're targeting for the organization. We also make sure that they've got returns on our invested capital.
And this one just as an FYI, you should expect that this does hit our cost of capital within about 3 to 4 years and we continue to grow throughout that entire period so that
the overall transaction does
get into double digit overall returns for us.
I'm sorry, did the tax benefits, should we just assume straight line on those tax benefits benefits annually, Bill?
Yes. So the tax benefit that I referenced is really the tax benefit associated with the deduction of goodwill and amortization in the U. S. Side. So keep in mind that we non GAAP our amortization.
So there's no benefit to our adjusted EPS for the tax reference that I mentioned. However, it does obviously positively impact our cash flow and that is over about a 15 year period of time.
Okay. And on the synergies, I'm sorry, is 10% a decent number?
Well, so the 10% synergies is different really by each one of our different transactions, right? As we have more integration opportunities like if we were doing a orthopedic type of transaction right now, you'd have significantly higher types of costs that you're eliminating over time. In this type of a transaction, I think it's as much complementary even though it fits in very nicely with our medical business and we're expecting to get synergies associated with that. The synergies levels moving forward on the improvement in the overall operating margin rates are positive obviously, but not as wild of a swing maybe that you'd see in a typical larger transaction with a lot of duplication.
Okay. And just a strategic question maybe for Kevin. Thank you, Bill. And a strategic question for Kevin. I guess, this is an off to beat us, but I think the question investors are going to have Kevin is, it's growing double digits today, but can these end markets support double digit growth for many years to come?
And what gives you the confidence that this is just not a growth business for 2 years, it's a growth business for 5 to 7 years?
Yes. What I tell you is the double digit growth that they've had frankly has been organic and it's been for well over a decade. So if you look at their chart of growth for the last 20 years, you'd see a chart that looks very much like a Stryker chart in terms of how they drive growth. And we look at the market, the size of the opportunity is still very significant. I think Tim outlined that in the beginning part of his presentation.
So as we've spent more time evaluating the company, we absolutely believe that this is a growth company that has significant headwinds for sort of a headroom for years to come. The clinical data, the capability and how they innovate. So when they go to market, they're just not launching a product. They bring data and they show the customer and demonstrate the value, track the data. So it's a real they have a real systems approach to the solutions.
And for those reasons and just the staggering amount of money that they can save hospitals, which has been demonstrated time and time again and has been the engine of their growth, we see that as having a very significant runway. And that's one of the biggest attractions to this. It's not the historic growth, it's the growth that we see going forward.
And our next question comes from David Roman from Goldman Sachs. David, your line is
Thank you. Good morning, everybody, and thanks for hosting the call on short notice. I wanted just to come back to the prior question actually regarding growth. Understandably, they've been delivering double digit growth over the past several years. So maybe, Kevin, you could go into some detail on what specifically have been the factors influencing the growth and how you may be able to actually improve the growth rate under the Stryker distribution umbrella?
Okay. I'll let Tim start and then I can finish. Tim, do you want to start a little bit about the prospects for increased net growth?
Yes. I think first, just back to what Kevin said, this has been a company that's had extraordinary performance through both innovation and excellent sales performance. And I think I would point you to our exhibited sales success over time with our top notch sales teams and state that the combination of our sales teams and our culture and continued innovation from Sage will be a winning formula. And they have a good pipeline. They have large existing markets, but also very large addressable markets, both in the U.
S. And outside the U. S. So we see great opportunity to expand share in the U. S, great international expansion opportunity, a nice proven pipeline and proven innovation engine at that business.
And I think as you look at the performance over time of the MedSurg units that this is going to be an excellent fit and we are very confident in our ability to continue to deliver strong growth.
And I think the only thing
I would add to that is, obviously they have expanded very significantly. But if you think about Stryker's presence in hospitals and just the sheer footprint that we have through our distribution channel, being able to take their proven solutions and add to that and build it and leverage our existing relationships. And over time, we're going to be able to drive those synergies on the top line. We see significant runway. So they've done a great job themselves.
They have a great leadership team. But plugging this into Stryker's engine, we've done this before with many, many products in the med surg area. We see this as a formula. It's not a new formula. We know how to do this and feel very confident going forward.
And maybe just a follow-up to that, as you're out talking to hospitals and you think about the acquisition maybe Patient Safety Technologies in this one, how much of an increasing priority or is it an increasing priority for hospitals to focus on things like hospital acquired infections and reducing costs? And as we look forward to things like ACOs, is this something that you think moves up the priority for hospitals and then this deal becomes increasingly important to Stryker on a go forward basis?
Absolutely. Maybe, Tim, you want to talk a little bit about never events and the focus on that at hospitals?
Well, sure. Yes, it's an absolute priority. And frankly, as we look at an opportunity in a portfolio like this, when you consider price pressure and opportunity and how you basically overcome that, prevent that and grow in these markets, It is it does tie back to this prevention message and the outcomes data that they have. Quite frankly, a lot of companies don't have they don't have data. They don't have basically clinical and economic proof of their outcomes.
This company has developed an engine that develops that and hospitals are very, very receptive. They're penalized if they don't meet certain standards, and they're more than happy to engage in dialogue. And generally speaking, when you get these products into hospitals, they have extreme stickiness as a result of their performance and frankly, the data that Sage has provided them even after the products are put in there to continue to demonstrate the efficacy of them.
And our next question comes from Matt Miksic from UBS. Matt, your line is open.
Thanks. Good morning. So one clarification on the accretion dynamics. You mentioned accretive net of the stopping the buybacks. So is that compared to buybacks, this is accretive or just standing start current share count is
accretive? No. The comment there was that, we're postponing our buybacks for this year. And last year, we did just about just over $700,000,000 of buybacks. We expected and we stated that we were going to do a good number of buybacks in our original guidance for this year as well too.
We are postponing those for 2016, but even net of the reduction of the benefit from that buyback, we're still expected to be $0.05 accretive on our adjusted earnings per share in 2016 once the transaction closes, which we're expecting to be sometime in the Q2.
Got it. Thanks for that clarification. The other question for Kevin, maybe, as you compare this to other decisions that you've looked at, opportunities where you've opted to build versus buy or at least partially build, what were the primary drivers here of a buy versus build? Was IP, Was it clinical data? I think, Kevin, you mentioned the systems approach that they have.
Are you going to be able to retain that? Maybe just walk us through what made this something that you couldn't just build over time yourself piece by piece? Thanks.
Yes. Thank you. So when you look at the individual products, you sort of look at those products and say, well, can't you make those same kind of products? And I'd point back to their process. It is a phenomenal process.
I think it's something that Stryker will learn a lot from in in terms of how to innovate. They created this whole market. They invented it. They know the ICU space. They're experts.
And their management team retention of their team is a huge priority for us and they're very committed. They've stayed together for their whole management team. Tim can cite it exactly, but over 20 years experience, every single person in the same company building this tremendous business. So it's very difficult, something that it looks like you may be able to replicate it, but they have the magic formula and they wrap it around with data. It's not easy to do.
And so that kind of know how is critical. We want the team to continue to grow. They're going to operate out of their same facilities that they do now. And over time, obviously, we'll look for synergies within Stryker. But this is something we always look at buy versus build.
We don't have these capabilities or competencies. We don't know the space nearly as well as they do. And for us, this makes much more sense to go ahead and acquire the company. And when you're already number 1, and Tim mentioned the stickiness, I wouldn't underestimate that, that once you have a good solution and you get into an account and you have the formula that works, then you lock up your business. And you're there, it's an annuity for years to come.
And if you try to come in separately, unless you have something different to offer, something more compelling, there's not a lot of reason for hospital to switch. These aren't $3,000 $4,000 priced items. So these are things the hospital, if they work, they work beautifully. They also know the nurse call point exceptionally well. And Stryker, we do call on the nurses, but not nearly as much as the surgeon or other health care professionals.
So they have a real sweet spot in understanding and knowing how to solve their problems. I don't know if you want to add anything to that, Tim.
Yes. The only other issue is time. And I think as we get bigger and bigger, the attractiveness of occasionally buying our way into markets with share leaders is it's very compelling in this situation. Sage has built a fantastic business, but as was noted, they have 45 year history and many of the products they're selling today have been out for 20 years. So part of the buildup of the brands and the innovation and kind of working their way through these product categories, they've traditionally launched new products and iterations every 2, 3 years.
So this is the result of many, many years of hard work, some very good commercial instincts on their part and a very good track record in batting average. So that all adds up to making this a much more attractive opportunity than attempting to build it within.
And our next question comes from Kayla Krum from William Blair.
Hi guys. Thank you for taking the questions. Just to elaborate on earlier questions about how to think about M and A going forward. Is it fair to assume that given the size of the Sage deal that we should think about smaller tuck ins for the next 12 months? Or does this deal integration not necessarily deter you all from doing something of size?
Well, it depends on how you define of size, right? So I think we still have a strong balance sheet. And one of the reasons to postpone, the share repurchase is to make sure we still have capacity. So this won't be the last deal that we do. And I'm sure the other deals that come up, regardless of their size, we're going to evaluate those the same way we do historically.
Now obviously, this does push us a little bit on our credit side, but we still have capacity to do more deals. And so we're not I wouldn't say we're finished. We're going to continue to look for opportunities to strengthen our divisions just as we have historically. Plus this is a very stable cash flow generator, very attractive financially. And so this will just add to our steady flow of cash, which as you know is very reliable and very and very consistent.
Okay, great. Thank you. And then you mentioned that $0.05 worth of accretion for 2016, but it seems like the benefits could expand beyond those levels post 2016. So can you just elaborate on some of the different levers you mentioned there might be able to pull with the Sage business longer term that could potentially drive EPS above those predetermined levels?
Bill, you want to take this one?
Sure. Well, I mean, I would say just out of the front side, keep in mind that this year's accretion is only for a partial year. So you will definitely see additional accretion coming in 2017. And I think you should also expect that there would be some related synergies that we would get the benefit of already in 2017 and probably the back end of 2016 and then even out into 2018 2019. So there will be some positives and it will be continue to be more accretive and that's one of the reasons why we mentioned as well that we would expect that you're getting accretion not only in the top line organic growth side as we move forward into 2017, but we should also be getting a little bit of additional accretion on the bottom line again for that because the growth in this should continue to give us benefits for multiple years despite the fact that it's not a major synergistic event for us.
And our next question comes from Joanne Wuensch from BMO Capital Markets. Joanne, your line is open.
Thank you. Good morning and congratulations on this. Two quick questions. Are there any obstacles to you starting to market these products internationally? I mean, I'm sort of curious why they haven't done so, so far.
And then second one is how large is their sales force and how do we think about them cross selling your products now?
Okay. Actually, I'll turn this question to Brad. Do you want to answer this one, Brad?
Sure. Kevin, in regards to the international part of the question, as Tim alluded to in his opening comments, Sage has predominantly been a North American based business, Canada and the U. S. And they've established a really nice footprint in the developed markets and Western Europe and we expect that to continue. Our business has grown considerably and our footprint is sizable in Europe and it's even been augmented by our Tom initiative.
Their selling force in the United States and Canada has been expanded. They added to it pretty significantly last year. But without getting into numbers, it's going to parallel and align very nicely with those folks in our existing business that are in the acute care space.
Okay. And our next question comes from Hima Nguva from Bank of America. Hima, your line is open.
Can you hear me okay?
Yes.
Great. Congrats on the deal. Two questions for Bill. One is, Bill, if you can give us a breakdown of cash and new debt that will be used for funding. And then, on the balance sheet, obviously, you've run it fairly conservatively.
And with the transition, I would like to know your commitment to single A continued commitment to single A credit ratings and also given you think there is on the balance sheet. And finally, it was wonderful working with you over the years and we will miss you. Good luck and congrats again.
Thanks, Tina. So as far as the breakdown on the transaction, we haven't given the detail on how much will be funded. But as you may recall, we stated that we did some significant repatriation at the back end of the year that we do have a good piece of U. S. Cash available as well too.
And we'll fully utilize kind of the benefits of what we've got on the balance sheet, but we'll also strategically add an appropriate level of new debt to take also advantage of kind of the low interest rate environment that we're in today. So you should expect that it is a mix of both. It will probably be a little bit heavier slated toward the debt than the cash, but we will definitely use some of the cash that we just repatriated.
And then on the commitment to single acreage ratings?
So I think our commitment to investment grade rating is We would We would expect that this would have a deterioration probably in our rating, but still stay solidly in the investment grade category and that's our general commitment.
And our next question comes from Saba Heckman
from New York Life Investment. Saba, your line is open. Thank you. My questions are just answered. Thank you.
And our next question William Plavink from Canaccord Genuity. William, your line is open.
Great. This is actually Kyle on for Bill. Just two quick modeling questions. One, I wanted to see if you could give us any color into the breakdown of capital versus disposable within the business there. And then also, that trying to get more insight into the seasonality that may be
in the business and just
how we think about it from a modeling perspective layering in that revenue into the medical line there?
Okay. I'll ask Tim to answer that.
Yes. The disposable revenue is at least 95%. So you can generally assume that it's a disposable business. And I'm not sure I heard the second, if there was a follow on to that.
The second part was just the seasonality. And obviously, based on the business is primarily consumable driven, most of that should be relatively little impacts on seasonality.
Great. Thank you very much. Congrats on the deal.
Thank you.
And our final question comes from Matt O'Brien from Piper Jaffray. Matt, your line is open.
Good morning. Thanks so much for squeezing me in here. Just to start off with on the competitive side of things, this is an area that I think we're all a little bit unfamiliar with. So can you just talk about some of the folks that Sage generally competes with and how successful they've historically been even over a 2, 3 year period in terms of impacting some of
these products that they're selling? Yes, sure. I'll ask Tim to take that.
Yes, it's a very fragmented space. As you look through their competitive set in these different product categories, it is frankly a set of names that many of you may not spend a lot of time with, but I'll name off a bunch here, Medline, DeRoyal, Cardinal, Posey, Coloplast, Convitech, J&J, Kimberly Clark. So they have chosen these segments and built this leading share position within them and just basically had steady share gains through innovation and salesmanship and hustle. So I think that's frankly part of the attractiveness of this asset is the way they have targeted these segments that have not frankly probably been overly attractive to some given the broadness of their existing portfolio or their approach. So think of this as perhaps a more focused and specialized company that has built these positions and one which may not have a very clear couple of competitors.
Brad, I don't
know if
you have anything to add to that. Yes, Tim, I would just augment your comments by saying every solution that the Sage team ultimately comes up with is uniquely solving a specific problem. So that is what has allowed them to become and remain a leader in each of their respective markets. So I wouldn't necessarily focus on what competitive market landscape looks like versus the Sage team has proven over many years to go after really big problems that exist within the healthcare system and they solve them with very simple, unique, elegant only in class solutions. And they've been able to do that and we expect them to continue to do that for many years.
Yes. And what I would add, I'll just add one last comment is their market share leadership in each of these categories is significant. So it's not like the market is divided among 2 or 3 players and they just have a slight lead. They have significant share leadership in every single category. That's one of the great appeals to this is that even though there are a number of competitors in each category, they all have very, very small market shares.
And over time, that's what Sage has demonstrated, the ability to because they solve a solution comprehensively, they make it easy to use. And the solutions are so slick with data backed with clinical data, it's just holistic approach. That yields significant market share advantage and significant leadership in every single category.
Okay, very helpful. Just a quick follow-up. As far as the number of accounts where Sage is present versus where Stryker has a presence, are they in 50% of the accounts where you're that?
Yes. I'll see
if Brad can take
a stab. I don't really that?
Yes. I'll see if Brad can take a stab. I don't really know.
Tim, their account list is substantial. Their penetration where some Sage product is sold in the vast majority of North American hospitals and beginning in Western Europe is substantial. And certainly there's opportunity to at an appropriate time to put our sales leaders together and figure out a comprehensive solution for our customer leveraging the entire portfolio of medical.
There are no further questions at this time. I will now turn the conference over to Mr. Kevin Loebel for any closing remarks.
Okay. So thank you very much for joining on short notice. You can see we have a highly attractive company that we've just announced the deal today on. Market leading segments accretive to both the top line and the bottom line. And I think we'll really make medical our medical division, which has historically been a very reliable contributor to Stryker's results, an even more powerful division going forward.
Thank you.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.