Medical device maker Covidien Ltd., which operates from Massachusetts and has a tax friendly headquarters in Ireland, is paying $2.6 billion for Ev3 Inc., a Minnesota medical device maker.
But the buy could well be seen as an Orange County deal.
Ev3, which makes stents and products for treating arterial diseases, has deep roots here.
The company has about 400 workers in Irvine, an operation that’s expected to stay intact after the deal closes in July, according to Ev3 spokeswoman Julie Tracy.
Ev3’s local operation stems from Irvine device maker Micro Therapeutics Inc., which Ev3 owned a majority of starting in 2002, and bought out in 2006.
Former Ev3 chief executive James Corbett, an OC resident, expanded operations here to tap the area’s medical device workers.
Corbett, who now runs Aliso Viejo device maker Vertos Medical Inc., was chief executive of Micro Therapeutics shortly after Ev3 bought its stake and then went on to run Ev3 itself.
In 2008, he was replaced by current Ev3 chief Robert Palmisano, another longtime OC medical device executive.
Covidien, which makes a range of medical devices, is buying Ev3 to build up sales of devices used to treat blood vessel diseases, Chief Executive Richard Meelia said last week on a conference call with investors and analysts.
The deal also is a way for Covidien, with yearly sales of nearly $11 billion, to spur growth, according to analysts Lawrence Neibor and Robert Krecak of R.W. Baird & Co. in Milwaukee.
It is “one of many large-cap companies that is struggling to organically grow revenue and must turn to acquisitions to fuel growth,” they said in a report.
Covidien had a market value of $21 billion as of late last week.
Ev3, which is based in Plymouth, Minn., has annual sales of about $450 million. It’s growing—first-quarter sales were up 23% from a year earlier to $124 million.
The device maker swung to a $9.8 million profit in the quarter from a $1.8 million loss a year earlier.
“With a company of (Covidien’s) magnitude, it is not surprising to see it acquire a higher-growth firm such as (Ev3),” Neibor and Krecak said.
Covidien’s pending buy of Ev3 also creates an exit for Warburg Pincus LLC, the New York-based private equity firm that cofounded it.
Warburg started Ev3 some 10 years ago with The Vertical Group, a venture capital investor with offices in Palo Alto and Summit, N.J.
Warburg holds about a quarter of Ev3 and is set to collect more than $600 million from the sale to Covidien, according to a Wall Street Journal story.
Ev3 spokeswoman Tracy told the Wall Street Journal that Warburg was “being rewarded for being patient.”
“Warburg has been strategic, patient and savvy, and we are lucky to have them on board,” she said.
The likelihood that Ev3 would be bought “was relatively high,” especially after Palmisano became chief executive two years ago, Neibor and Krecak wrote.
“Palmisano has a solid track record of building up companies and putting them up for sale,” they said.
He took IntraLase Corp., an Irvine maker of lasers used in vision correction surgery, public in 2004 and oversaw its 2007 sale to Santa Ana-based Advanced Medical Optics Inc., now Abbott Medical Optics Inc.
In 2000, Palmisano sold Summit Autonomous Inc., another eye laser company, to Switzerland’s Alcon Inc., which has more than 770 workers in Irvine.
Palmisano was unavailable for comment last week.
Covidien, formerly Tyco Healthcare, competes with several local medical device makers and has tangled with two in particular.
Masimo Corp., an Irvine maker of patient monitoring devices, and Rancho Santa Margarita’s Applied Medical Resources Corp., a maker of surgical devices, have fought with Covidien over patent and other issues for many years.
