Brian Johnson @brianmassdevice
In April, I took my 6-year-old son to a Red Sox game and was surprised to see that a familiar face was missing from the Green Monster.
For the past several years, Covidien — a $10 billion-a-year medtech company that makes everything from sanitary napkins to surgical navigation equipment — had held top billing on the Monster, its logo as prominent as the old scoreboard itself. It was an audacious statement, considering Covidien’s sometimes purposefully opaque approach to public relations.
The ad disappeared this season, and now Mansifeld-based Covidien itself is slated to disappear, subsumed by Minnesota-based Medtronic in a whopping $43 billion deal announced late Sunday. You find MassDevice.com’s detailed coverage of the merger here.
The mega-deal means a shift in the center of gravity between two of the three main legs of the US medtech tripod — Boston and Minneapolis. Medtronic plans to maintain its presence in Minnesota, where it employs about 8,000 workers, and to shift Covidien’s operations there from its base in Mansfield, Medtronic chief executive Omar Ishrak told the Minneapolis Star-Tribune.
“The current operating headquarters of Covidien in Boston will, in effect, be integrated into Medtronic in Minnesota,” Ishrak told the newspaper.
In addition, Medtronic is looking to shave about $850 million from its costs following the merger. That means layoffs here in the Bay State, where about 1,800 of Covidien’s 38,000 employs work. Neither company has detailed plans for job cuts. The deal is expected to close late this year or in early 2015.
Tom Sommer, president of the Massachusetts Medical Device Industry Council (MassMEDIC), characterized the deal as “huge” for both the Commonwealth and the broader medtech world.
“It will take some time before we can fully analyze the impact on Massachusetts,” Sommer told us today. “There will be some job loss, no doubt, as duplication in the two organizations will be eliminated.”
Covidien, a premium member at MassMEDIC, has strong ties to Massachusetts.
After spinning out of Tyco in 2007, Covidien embarked on a massive branding campaign that included high-level associations with the New England Patriots and Boston Red Sox. Covidien chief executive Jose Almeida was a personal guest of Patriots owner Robert Kraft at this year’s AFC playoff game against the Indianapolis Colts, having brought Kraft in as the keynote speaker in Boston at the 2012 Advanced Medical Technology Assn.’s annual conference.
Covidien’s executive team includes several senior managers with ties to local colleges and universities; John Connors Jr., a founding partner of Boston advertising firm Hill Holliday Connors Cosmopulos Inc., was a Covidien board member from 2004 to 2014. And Covidien’s former CEO, Rich Meelia, is a Massachusetts native.
The deal also could send shockwaves through the local commercial real estate market. Covidien occupies about 650,000 square feet of property in Mansfield and Bedford, according to the Boston Business Journal.
For its part, Medtronic has a Bay State presence with facilities in Littleton and Danvers. In addition, the company houses one of its business units in Portsmouth, N.H., which it obtained in a 2011 deal for Salient Surgical.
But perhaps more importantly, to the local medical device scene at least, is the potential loss of one of its most prolific acquirers and economic development engine’s from the region.
All medtech companies rely on a web of local service providers like contract manufacturers, regulatory consultants, lawfirms and other suppliers that enable companies to manufacture and market products here and abroad. Large companies like Covidien are a true economic engine for these service industries, kicking off tens of millions of dollars in contracts and services and creating thousands of jobs.
With a few exceptions, many of these service providers are traditional small businesses, relying on pieces of contracts kicked off from business units at Covidien. With one fewer major player in the local ecosystem, some of these firms will struggle to stay afloat and there will likely be further consolidation in that space.
Covidien has also been a natural point of exit for companies that are building and pioneering new medical equipment out of the Commonwealth.
Sommer was optmistic that the loss won’t change that, even when Covidien is officially integrated into Medtronic.
“The merger of two important acquirers won’t have much impact on early-stage companies’ exit plans,” he explained. “The new company will need to keep its pipeline full of innovative medical technologies, so after an initial period of assimilation, I think the acquisitions will continue.”
