With the acquisition of the Medical Products division of Medegen LLC, Medical Action Industries Inc. overnight will double its workforce and manufacturing capacity, and add blow and injection molding capabilities, and, by 2008, turn itself into a $250 million company.
``It gives us a much bigger footprint in the market and increases the depth and breadth of our offerings,'' said Paul Meringolo, chairman, chief executive officer and president of Medical Action.
The acquired division generates $100 million in annual sales and makes plastic amenities for hospital patients, such as wash basins, urinals and bedpans, in plants in Northglenn, Colo., and Galloway, Tenn.
Medical Action did not disclose sales, but for the fiscal year ended March 31, 2002, the firm reported sales of $82 million.
The acquisition - Medical Action's fifth since 2002 and 10th since 1997 - will make the Hauppauge, N.Y., company a leading supplier of disposable surgical products and disposable products for patients and give it the opportunity to leverage a greater number and variety of items to existing customers of both companies. Medical Action's sales force is three times as large as Medegen's.
``We are going to continue to grow internally through product development, acquire more companies and get even larger,'' Meringolo said in a Sept. 11 telephone interview.
``Consolidation within the health-care industry, together with our strong cash flow, will continue to drive our acquisition strategy,'' he said.
``We believe that we will grow organically close to 10 percent each year, and 15 percent each year through acquisitions,'' added Richard Satin, Medical Action vice president of operations and general counsel. ``Every four years, we have the opportunity to double the size of the company.''
Company sales were $57.5 million in 1999 and will be ``five times that in fiscal 2008,'' Satin said.
The $80 million cash acquisition is expected to close in 45 days. Analyst Matt Dolan of Roth Capital Partners LLC in Newport Beach, Calif., called the purchase price ``pretty attractive'' and said that it had been ``heavily expected'' during the past 18 months that Medical Action would make a move of this type.
``They have been a leader in the diversified medical products group and have succeeded in growing their sales and profits in a relatively tough market, where supply chain and resin costs are rising,'' Dolan said. He added that there is no overlap between product lines and the firms use the same distribution channels, which will help them cut costs.
Medical Action has posted record net profit for nine consecutive years and record sales for 11 years. Both sales and profit rose 7 percent in fiscal 2006, and the firm increased shareholder equity to $83.1 million, up from $17.9 million in fiscal 1999.
With the acquisition, Medical Action increases its workforce from 375 to 800 and more than doubles manufacturing space to over 500,000 square feet, said Satin.
It also transforms Medical Action into a company that now manufactures more than 50 percent of its products domestically, rather than one that outsources much of its production to China.
Medical Action currently does only blown film extrusion at its plant in Clarksburg, W.Va. Its other plant, in Arden, N.C., does assembly and packing.
``It broadens our depth of manufacturing capabilities,'' said Meringolo. ``If we have a good supplier, we are likely to keep that arrangement. But there are a lot of components that we now look to buy that we may be able to make.''
He added that he expected most of the products made by Medegen to continue to be made in the United States.
Satin added that the deal gives the company ``greater presence at the hospital level.''
``It gives us significant critical mass at the national distribution level. It gives us critical mass for purchasing power,'' he said.
The added purchasing-power leverage builds on what analyst Dolan said is one of the company's leading strengths.
``From an execution standpoint, they manage their costs of resins well,'' said Dolan. ``They also handle manufacturing and supply chain costs well and have a good relationship with customers that enables them to pass on cost increases,'' when necessary, to customers.
``We are very focused'' on that, said Satin. ``We watch the price of resin closely. We manage that process better than most companies.'' He added, paralleling what Dolan said, that Medical Action has built solid relationships with its customers.
``When we go to customers for a price increase, they know it is to recoup our costs and not to increase our profit margins,'' Satin said.
Medical Action also has an information technology system that allows it to fill orders within 48 hours - which enables its customers to reduce inventory, paperwork and lead times, and improve their own margins.
Medical Action has been listed as one the 200 best small public companies for five years in a row - from 2001-05 - by Forbes magazine.
Medegen, which is based in Scottsdale, Ariz., retains its Medical Manufacturing Services division, which makes specialty infusion therapy disposables.