Medical Devices Tie-up: Stryker to Buy Physio-Control for $1.28B

Xconomy Seattle — 

Physio-Control, a progenitor of the Seattle-area medical devices industry, will again become part of a large public company headquartered elsewhere. Kalamazoo, MI-based Stryker (NYSE: SYKhas agreed to buy the maker of automated external defibrillators and other devices for $1.28 billion in cash.

For Stryker, Physio-Control is the third acquisition announced this month and its 20th since 2010.

Stryker is paying a 162 percent premium over the $487 million Bain Capital Private Equity shelled out four years ago to buy Physio-Control from Minneapolis-based Medtronic (NYSE: MDT), which means this is the second time Bain has realized a big return buying and selling the company. Bain acquired Physio-Control in 1994 from Eli Lilly for reportedly $200 million to $300 million (the actual price was not disclosed) and sold it in 1998 to Medtronic for $538 million.

Stryker sees in Physio-Control a complement to its emergency medical services business. Physio-Control pioneered devices used in urgent care and emergency response including defibrillators—which shock a heart in cardiac arrest back to normal rhythm—monitors, and CPR-assist devices.

Kevin Lobo, Chairman & CEO, Stryker.

Kevin Lobo, Stryker chairman and CEO.

“Physio-Control has achieved global leadership positions with a strong brand and customer-centered solutions that can predict or intervene in life-threatening emergencies,” said Stryker chairman and CEO Kevin A. Lobo in a news release.

Brian Webster, president and CEO of Physio-Control, added: “Stryker has a deep understanding of capital equipment and of our core market segments. We will build on the success our team has achieved in partnership with Bain Capital, and further accelerate the execution of our strategy, including continued investment in great product solutions for our customers.”

Brian Webster, president of Physio-Control

Brian Webster, president and CEO of Physio-Control.

Physio-Control has approximately 1,400 employees spread across locations in 16 countries, though most are at its Redmond, WA, headquarters.

“While Stryker and Physio-Control remain separate businesses until closing, we have no immediate plans to make any changes to the current Physio-Control brand after closing,” a Stryker spokesperson says in a statement. Asked for more details of Stryker’s plans for Physio-Control employees and operations, the spokesperson added: “We see significant synergies with the expertise and talent of each company. But, until the closing, it’s business as usual.”

The acquisition is expected to close early in the second quarter.

Physio-Control’s 2015 sales were $503 million, up 6 percent in “constant currency” from 2014, according to the Stryker news release. Stryker, meanwhile, reported 2015 consolidated net sales of $9.9 billion, up 7 percent in constant currency. (The company’s large overseas business—nearly 40 percent of 2015 sales were outside the U.S.—results in significant foreign exchange impacts.) It reported 2015 net earnings of $1.4 billion, up 179 percent.

Physio-Control was founded in 1955 by University of Washington cardiovascular surgeon Dr. Karl William Edmark who invented a direct current (DC) defibrillator. W. Hunter Simpson joined as president in 1965, forming partnerships with medical, academic, and civic leaders to build an industry focused on saving heart attack victims, according to Physio-Control.

Rob Arnold, an advisor to Seattle-area healthcare innovators and an Entrepreneur in Residence at the UW’s commercialization and innovation transfer office, said the enduring company and industry that grew up over the last five decades is a “great example of what happens when community leaders work together.” He wants to see more of the same as the region tries to capitalize on existing strengths to grow more healthcare innovation businesses.

“It’s time for Seattle leadership to step back, study examples like Physio-Control and identify areas where our community can compete and win,” Arnold said via e-mail.

Stryker has a storied history of its own, dating back to 1940, when orthopedic surgeon (and Kalamazoo native) Dr. Homer Stryker began inventing medical equipment, including the Stryker Turning Frame, a hospital bed that allowed a patient to be repositioned while remaining immobilized. Today, Stryker has some 18 business groups making everything from hospital beds to tools and equipment for a range of surgeries to healthcare IT and communications tools.Stryker logo

Stryker has expanded its geographic scope, entered new business lines, and gobbled up competitors through more than 31 acquisitions dating back to 1979. It has made some 20 acquisitions since 2010, including three announced this month alone: In addition to Physio-Control, it is buying Cary, IL-based Sage Products, which makes disposable surgical products for hygiene and safety, for $2.78 billion from Madison Dearborn Partners, another private equity firm. And  it has a deal in place to buy Synergetics USA’s portfolio of neuro tools.