There may be no better living authorities on the origins of Minnesota’s modern-day medical technology industry than the four Fleischhacker kids.
“I’m 59, and I’ve been in the medical device business for 51 of them,” quipped Joe Fleischhacker Jr., who until a few weeks ago was CEO of Chaska-based Lake Region Medical.
In 1947, the late Joe Fleischhacker Sr., and two other fishing-loving engineers from Honeywell pooled $1,200 and started a side business called Lake Region to make fishing lures and tackle in a renovated chicken coop behind the Fleischhacker family home in Minnetonka.
That venture failed. But Joe Sr., who left Honeywell in the early 1950s to take a job as design engineer at a local welding company, kept Lake Region going in the back yard. He’d design things at night and a couple employees worked at what became a contract machine shop.
In 1960, Joe Sr. learned that an electrical engineer named Earl Bakken, the fellow who founded Medtronic in a northeast Minneapolis garage, needed somebody to design and manufacture small-diameter coils — wires that would connect the first implantable pacemakers to a patient’s heart.
The initial coil winder used a washing-machine motor and an old lathe to drive the winding mechanism. The Fleischhacker kids would hold a spool of wire and walk slowly forward, feeding the wire into the winding machine. That was soon replaced by the newly built “Grandma Coil Winder,” which produced all of Medtronic’s lead wires during the 1960s.
“After we did our homework in grade school, we would head to the shop,” recalled Mark Fleischhacker, 64, who eventually became chief operating officer of the family business. “We’d package them and mom would drive them to Medtronic in Fridley. You could not repeat that scenario with the regulations and child-labor laws today.”
Thus was born Medtronic’s oldest continuous supplier of the last half-century.
Earlier this month, Lake Region, owned by the Fleischhacker family and the children of several other employees, was sold for $390 million in cash and stock to Boston-based Accellent, which engineers and manufactures complementary products for some of the same medical device manufacturers. A share of stock acquired for $100 by employees in 1973 was worth $16,000 to Accellent.
The Fleischhacker kids, three of whom became executives of Lake Region, didn’t exactly rush into the sale. After all, this was a company founded by their dad, who died at 76 in 1994, and Victoria Fleischhacker, his wife and business partner, who worked almost until her death at 81 in 2006. The kids enjoyed running a successful, growth business. They made small acquisitions that worked.
“Accellent first came out to see us four years ago,” Joe Fleischhacker said. “Our customers were telling us we needed to bulk up. I and my brother and sister (Chief Administrative Officer Kate Fleischhacker Roehl, 62) were not getting any younger. In 2013, we went back to Accellent. They were the best strategic option and offered a growth plan for our company and employees.”
The Fleischhackers, with the exception of Joe who will remain in senior management and on the board of the combined company, will leave after an unspecified transition period.
Lake Region, consistently profitable and with $212 million in revenue last year and 1,800 employees in Minnesota and Ireland, doesn’t expect layoffs beyond unspecified cuts at the corporate staff level. The combined company would have had $525 million in revenue last year and about 5,000 employees.
They design and make some components that work together, such as Lake Region guide wires and Accellent catheters. They have hundreds of customers.
“We would not have done the deal if we didn’t feel the combined entity was going to grow,” Roehl said.
The Fleischhackers took $75 million of their take on the sale in stock in the combined company. The family owners include John Fleischhacker, 66, the oldest son who left in 1974 to start Daig Corp., a public company he sold to St. Jude Medical Inc. for $427.5 million in 1996.
Accellent, majority owned since 2005 by private equity manager Kohlberg Kravis Roberts, is renaming the merged company Lake Region. Accellent CEO Don Spence said in an e-mail last week: “We are very excited about the future and what the merger of these two great companies will mean for our customers and employees.”
Accellent lost more than $70 million last year, according to a federal regulatory filing in February. Accellent recently raised about $1.13 billion in low-cost debt to buy Lake Region and pay off outstanding debt holders. The combined company will no longer have to file public financial reports.
Lake Region’s attorney, Bruce Engler, head of the mergers and acquisitions practice at Faegre Baker Daniels, said the shareholders’ meeting to consider and approve the sale was more like a reunion of family and friends. He never represented a more engaged group of owners in a sale process than the Fleischhackers. There were hugs and tears.
“Most deals today are done with lawyers firing documents back and forth at each over the Internet,” Engler said. “The Fleischhackers wanted to understand everything and they sat with us for days during negotiations. The other side was here, too. It was a lawyer’s dream. Just like the old days.”