St. Jude Medical is is paying more than $1 billion to buy AGA Medical, a Plymouth, Minn. firm that makes devices that treat heart defects and blood vessel abnormalities, primarily in children.
St. Jude Executive Vice President and CFO John Heinmiller says the acquisition of AGA gives his company a leading position in several new markets for treating heart problems.
"St. Jude Medical really looks at this as a growth opportunity. This is really about trying to do more with the resources that are available through St. Jude Medical and continue the business that AGA has developed," he said.
AGA employs about 550 workers, mostly in Plymouth. No job cuts are expected as a result of the transaction.
St. Jude expects the deal to close by the end of this year and add to its bottom line next year.
Morningstar medical technology analyst Debbie Wang said she likes the deal because AGA products enjoy hefty profit margins. But Wang said she doesn't expect the deal will give that much of a sales boost to St. Jude in the near future.
"St. Jude is a $4.6 billion company, at this point, in revenue, and AGA had about $200 million in sales last year," she said. "It's still a fairly small drop in the bucket."
AGA is the sixth acquisition by St. Jude since the start of 2008. The total price tag on those deals is about $1.8 billion.
Since 1994, St. Jude has acquired 18 companies, paying about $4.5 billion for them. Meanwhile, Medtronic, the other med-tech powerhouse based in the Twin Cities, has done 10 deals since the start of 2008, shelling out $2.5 billion for those companies.
Jan Wald, a medical device analyst with Noble Financial, expects a surge in big med-tech companies buying smaller firms with promising technologies.
"My sense right now is the large companies are going on a bit of buying spree," he said. "There's nothing that's going to stop these guys from going forward with acquisitions. They're looking for growth. They're looking for for new markets, and I think there are some very interesting prospects in Minnesota."
He wouldn't name those prospects, but said they include a mix of private and public companies.
"There's a number of these companies that have been developing their technology and are now at a stage where they've become attractive to the large guys," Wald said.
Minnesota's big med tech firms appear to have a lot of buying power. They reported a total of more than $5 billion in cash on hand in their most recent quarterly reports. Medtronic had the most with nearly $4 billion.
But some industry observers worry Minnesota isn't nurturing start-up medical device companies as well other states are.
Peter Bianco advises investors about start-up companies. He said he worries about the future pipeline of local med-tech companies that'll be acquisition targets in the future.
"We're not creating enough acquisition targets for local companies like Medtronic or St. Jude," Bianco said. "We've seen that drop off fairly dramatically over the last few years."
Bianco said venture capital funding has been slower to rebound from the financial crisis in the Midwest than it has been on the east and west coasts.
Minnesota's medical technology base is also not as diversified as the mix of medical device companies in California and Massachusetts," he said.
"We seem to be very focused on cardiovascular, almost as a one-string violin," Bianco said. "I would say and we need to broaden beyond that if we're going to be very successful."
Still, for today, there's cheering in Plymouth. AGA Medical's share price soared 41 percent today to $20.70.
St. Jude's stock closed at $40.63 today, up 73 cents.