J&J and Medtronic have contrasting acquisition strategies. Can both win?

Johnson and Johnson’s (NYSE:JNJ) CEO Alex Gorsky is apparently shopping around for medical device companies to boost sagging sales in its Cardiovascular Division.A Bloomberg story highlights how some analysts believe companies like St. Jude Medical and Edwards Lifesciences could be good acquisition targets. J&J’s strategy of growing through acquisitions appears to contrast with the acquisition strategy of another top-tier CEO, who like Gorsky, is charged with a turnaround: Medtronic (NYSE:MDT) CEO Omar Ishrak.If J&J goes with Edwards Lifesciences, it will get Sapien, the first approved implantable transcatheter aortic valve in the U.S. Many believe that TAVR is one of the most exciting new technologies to treat acute cardiac stenosis, or narrowing of the arteries in the heart in patients who cannot undergo open heart surgery.If it buys St. Jude Medical instead, J&J will bring into its fold a company that boasts of the industry’s highest operating margins, according to Bloomberg’s own analysis.Either way, it will cost J&J a pretty penny with acquisitions worth several billions of dollars.Thom Gunderson, a veteran analyst with Piper Jaffray in Minneapolis, told Bloomberg that a big acquisition is exactly what the doctor ordered.My view would be: “Go big or go home.” Cardio is a growth area and J&J has done well in the past there. They just need the right horses to ride.It is interesting that Gorsky, who became CEO in late April, and analysts are talking about large acquisitions in the future even as the ink is just drying on one huge J&J transaction — the purchase of Synthes announced in April 2011 for $21.3 billion. In fact, the acquisition is expected to close in the first half of the year.And then will come the task of integration, which is never easy. Just ask Medtronic.Former CEO Bill Hawkins spent a hefty $4.2 billion to acquire Kyphon in 2007. Several years later, it has turned out to be awhite elephant. And new CEO Omar Ishrak recently appeared to be open to divesting the spine business to which Kyphon belongs, in a marked shift.Many believe that Hawkins helped the startup industry by making many acquisitions, but those may not have necessarily have helped Medtronic.Ishrak is avowedly going to be more “disciplined” about acquisitions. In fact, Ishrak has said repeatedly that he will only look at acquisitions when they can immediately add value to the bottom line. He is not looking at spending lots of money when returns are years away.His main focus will be on driving operational efficiency and upping Medtronic’s revenue in global markets.That is quite a contrast from J&J’s CEO. Gorsky, who led J&J’s Medical Device Division before being anointed CEO, seems to be looking at growth through acquisitions.Time will tell whether both approaches work. (Assuming that Gorsky emerges unscathed by the fraud allegations brought by the federal government.).Source:Arundhati Parmar.http://medcitynews.com