Kendall McGaw Labs Sold to Investor Group

Boston-based Kendall Co. said Monday that it has completed the $200-million sale of Kendall McGaw Laboratories Inc. to an investor group headed by James M. Sweeney and that it has agreed to sell its pharmaceutical unit to a small San Diego firm for $15 million.

Sweeney, an entrepreneur who once worked for a predecessor company of Kendall McGaw Labs, said it was difficult to obtain the financing to acquire the company, which is based in Irvine and manufactures fluid, drug delivery and nutritional products. The company will be renamed McGaw Inc. Sweeney said he succeeded by convincing lenders of “the underlying strength of the company and the fact we are in a relatively recession-proof business of providing health-care products to individuals who get sick regardless of the economy.”

The debt financing, led by Wells Fargo Bank and Equitable Life, was provided by some of the nation’s most prominent lenders. In addition, Sweeney said, a cash investment in the project was made by him and by various investment institutions, among them two venture capital firms, Ventana Growth Funds and Enterprise Partners.

Plans call for the one piece of Kendall McGaw Labs that the Sweeney group did not buy--Kendall McGaw Pharmaceuticals of Irvine--to be sold to Gensia Pharmaceuticals of San Diego. Completion of the deal is contingent on financing’s being obtained, Gensia President David Hale said.

Gensia manufactures small-volume injectable pharmaceuticals used by acute-care hospitals. The company is currently developing drugs that acute-care hospitals would administer to victims of heart attacks and other illnesses to minimize the tissue damage that results from a lack of oxygen.

Kendall’s pharmaceutical unit has about 90 employees and will report a net loss on anticipated revenue of $3 million this year, Hale said.

Sweeney is the founder of Caremark Inc., a Newport Beach-based home health-care company that was sold to Baxter International in 1987 for $586 million.

Sweeney said his first priority at McGaw will be to infuse more zest and more accountability into the business culture of the company, which has 3,000 employees and annual sales of about $225 million.

“I think one of the exciting challenges for me is helping McGaw become more of an entrepreneurial company,” Sweeney said. “This is the first time in four decades that this company is truly independent.”

The company was founded in 1933 and known as Don Baxter Laboratories, after the physician who started it. American Hospital Supply acquired it in 1950, and it was renamed McGaw Laboratories after the founder of the parent company. American Hospital was acquired by Baxter Laboratories in 1985. Baxter sold McGaw to Colgate Inc., and it was combined with the Kendall division. That division, including the McGaw unit, was spun off as the Kendall Co. in 1988.

In the past, Sweeney said, McGaw was partly insulated from the lessons of the marketplace because it could count on help from its corporate parents. As an independent company, he said, McGaw will find that “a good decision is more highly rewarded and a bad decision is more painful.”

Sweeney said he has selected an executive management team, whose members he is not ready to identify, that will formulate a new business strategy for the company by the end of the year.

A major objective, he said, will be to streamline the organization, to slice away bureaucracy that, he complained, “slows down the decision-making process and diffuses responsibility and accountability.”