St. Jude Medical (NYSE:STJ) does not often do flashy deals, but the company has a solid track record of buying just-under-the-radar companies with strong positions in lucrative niche markets. St. Jude rolled out that formula again on Monday, announcing a cash and stock deal for AGA Medical (Nasdaq:AGAM) - a small-cap med-tech company with a great franchise in niche applications of cardiac structural repair and vascular abnormalities.

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The Deal
To bring AGA Medical into the fold, St. Jude is paying about $1.1 billion in a mix of cash and stock, and assuming over $200 million in AGA Medical debt. All told, St. Jude is facing a $1.3 billion price tag, while AGA Medical shareholders get about $20.80 per share divided equally between cash and stock. In order to neutralize the impact of these shares, St. Jude's board also authorized a share repurchase program of up to $600 million. (For more, see The Wacky World Of Mergers And Acquisitions.)

At $20.80, AGA Medical shareholders are getting a better than 40% premium to Friday's closing price. Moreover, the deal values AGAM at over six times 2010 estimated revenue - not quite back to the levels of 8 - 10 times sales seen in the heyday of med-tech M&A at the turn of the century, but a nice premium all the same.

What St. Jude Is Buying
In AGA Medical, St. Jude is buying the leader in catheter-based minimally invasive treatments for many congenital structural defects of the heart. While AGA Medical has a lion's share of this roughly $250 million market, the real value in AGA Medical is its pipeline. The company is pursuing technologically similar minimally invasive approaches to treating patent foramen ovules (PFO) - a heart defect implicated in strokes and migraines. Other R&D efforts include vascular stent grafts and cardiac plugs for left arterial appendage (LAA). All in all, these are four shots on goal for four $1 billion-plus markets. (For more, see A Checklist For Successful Medical Technology Investment.)

Stronger In Cardiology
With this deal, St. Jude definitely strengthens its cardiology franchise - an area that until recently had pretty much gone to sleep in terms of investor and corporate interest. Now, though, Medtronic (NYSE:MDT) and Edwards Lifesciences (NYSE:EW) have investors' attention with their transcatheter heart valves, and Volcano (Nasdaq:VOLC) is showing there is a real business in both intravascular ultrasound imaging and functional measurement (which, technically, is electrophysiology and/or cardiac imaging and not cardiology).

The Bottom Line
It is improbable that this is the start of a new wave of med-tech M&A, any more than relatively recent deals by Medtronic and Covidien were the start of a new wave. Big companies are always on the prowl for innovative approaches that can capture and hold significant marketshare. What it means for investors, though, is that there is real value in small and mid-cap medical technology companies that fit that description - companies doing something new and innovative, treating real problems and possessing the quality and competence to grab real market share. (For more, see Investing In Medical Equipment Companies.)

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