Apparently the stability of Medtronic
The company makes catheter devices that clear sinus cavities by inflating a balloon. Think of it like the ear-nose-and-throat doctor's version of an angioplasty. Johnson & Johnson is paying $785 million net of estimated cash on hand at time of closing for Acclarent.
Normally, when deals involve a private company, investors can be in the dark about the company's financials. But we have some financial information about the company because Acclarent filed documents with the Securities and Exchange Commission in connection with a planned initial public offering. Unfortunately the proposed IPO, which was later withdrawn, was last year, so it only provides a little nugget of information: In the first half of 2008, its revenue grew by over 150% compared to the same period in 2007. That's fairly dated, but a good sign that the technology was being adopted well.
Here's another nugget that might make investors feel comfortable with the deal: Johnson & Johnson's venture capital arm was one of the investors in Acclarent. A company's familiarity with the company it's buying is a factor in the success of an acquisition. That's why Merck's
The acquisition will decrease adjusted earnings by $0.03 to $0.04 next year. Presumably with the help of Johnson & Johnson's powerful sales force, investors can expect that the acquisition will pay for itself relatively quickly.
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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a recommendation of the Inside Value newsletter. The Fool owns shares and has sold puts on Medtronic. The Fool has a disclosure policy.