Water Street merges medical device manufacturers

Water Street Healthcare Partners has financed the merger of gastroenterology diagnostic device manufacturer Alpine Biomed and the neurological diagnostic device business of Medtronic.

Chicago-based Water Street Healthcare Partners has acquired a majority stake in Alpine Biomed, gastroenterology diagnostic device manufacturer, for an undisclosed amount.

Fountain Valley, California-based Alpine Biomed has used the investment to finance the acquisition of the neurological diagnostic device product line of European company Medtronic. The merger positions Alpine to assume market leadership in producing diagnostic products for acid reflux disease, a $620 million market, as well as neurology diagnostic products for conditions such as carpal tunnel syndrome and sleep apnea.

“In general, this is a nice, stable, growing market, with mid-single digit growth,” said Water Street principle Ned Villers.

The merger of Alpine and Medtronic also creates back office synergies, Villers said. Medtronic is looking to expand in the US, and Alpine Biomed will benefit from Medtronic’s neurology diagnostics infrastructure in Europe, where the business holds approximately 20 percent of the neurodiagnostic market. Both businesses can also collaborate on software development, Villers added.

Villers said Water Street will continue to look for additional acquisitions of small and mid-size diagnostic device companies to build Alpine Biomed’s market position.

Water Street is currently investing its first fund, which closed in 2005 on $400 million. The firm aims to invest in eight portfolio companies through the fund. Alpine is the fund’s sixth investment. Water Street specialises in the distribution, services and device sectors of the healthcare market, and typically seeks transactions of between $50 million and $500 million.

The firm was founded by Tim Dugan, formerly of Chicago-based One Equity Partners, which is now the private equity arm of JP Morgan.

The medical device sector has attracted a considerable amount of private equity capital of late. In July The Blackstone Group agreed to pay $1.6 billion for DJO, which supplies devices and services for musculoskeletal and vascular ailments. Blackstone plans to merge DJO with a medical device company it acquired in 2006 for $903 million, ReAble Therapeutics. In June, American Capital Strategies made an $8.9 million investment in female-focused medical device company HALT Medical.