Medtronic Inc. announced that it has spent $645 million acquiring two companies to bolster its surgical technologies business, which just reached the $1 billion milestone in annual revenue for the first time last year.
The Fridley-based medical technology giant already holds ownership stakes in both Salient Surgical Technologies Inc., of Portsmouth, N.H., and Peak Surgical Inc., of Palo Alto, Calif. So net of the respective ownership stakes, the deals are valued at about $585 million.
Both companies have developed advanced technologies for surgery.
Salient's technology heats soft tissue and bone to seal wounds in orthopedic, spine, abdominal and thoracic surgery. Peak's technology uses radio frequency energy to help surgeons make incisions in various procedures, including ear, nose and throat, plastic and reconstructive, and orthopedic surgeries.
Chris O'Connell, president of Medtronic's Restorative Therapies Group, said in a statement the acquisitions will help the company serve new customers and "better meet the needs of existing ones."
Analysts said the deals reflect Medtronic's need to find new areas of growth, as sales of heart devices and spine surgery products languish.
Morgan Stanley analyst David Lewis said the acquisitions represent "a new and interesting growth avenue for the company." He also wondered how aggressively Medtronic will pursue growth in the general surgery area, especially since it is dominated by Johnson & Johnson and Covidien PLC.
"Long-term the questions remain regarding how relevant these products are to general surgery and how aggressive will Medtronic be in a largely new distribution channel," Lewis wrote in a note to investors.
Salient is the larger of the two companies with about $100 million in annual revenue and 330 employees. Peak Surgical has 50 employees and annual revenue of about $20 million. Medtronic said both businesses are "growing rapidly."
Both companies will fall under Medtronic's surgical technologies business, which reported $1 billion in sales for fiscal 2011. In the fourth quarter, sales increased 9 percent for the business, which is one of Medtronic's smallest. However, the company said "strong growth was seen across all major product lines due to thawing of U.S. hospital capital budgets and increasing demand for new capital equipment technology upgrades."