Philips has agreed a deal to buy US-based medical device maker Volcano for $1.2 billion including debt.
The deal is its largest healthcare acquisition in seven years and marks a bid to cash in on an ageing population's need for more complex treatments.
Philips said the acquisition of Volcano - which makes equipment that allows doctors treating heart disease to see inside patients' veins and measure blood flow - would lead to synergies in research and development and in sales.
The deal is expected to add to Philips' earnings per share by 2017.
But at $18 per Volcano share, a premium of 57% to its closing price yesterday, the cost of the deal worried some investors.
Philips, until recently a diversified conglomerate that made everything from televisions to lightbulbs to X-ray machines, is spinning off its historic lighting division to focus on its higher-margin healthcare business.
"In an ageing world with more chronic disease, health and healthcare are enormous opportunities that we want to focus on," the company's chief executive Frans van Houten said.
He said the price was "very acceptable" for a research-intensive market leader that would strengthen Philips's position in non-invasive surgery, a field likely to benefit as national healthcare budgets come under increased strain.
"Minimally invasive surgery is the way forward: the patient goes home the next day; there are fewer complications," he said.
Philips expects to see growth in the portion of healthcare spending allocated to technology, now only 5% of budgets, far behind staff and pharmaceutical costs.
Volcano makes catheters that can slide into veins to make ultrasound scans of the interiors of blood vessels, allowing doctors to treat without putting patients under the knife.
Philips is a leading maker of the X-ray machines that 'map' patients' bodies as surgeons insert the catheters.
Volcano would also give Philips a closer relationship to customers, Van Houten said.
The deal is Philips' largest since the $5.1 billion acquisition of sleep apnea treatment company Respironics in 2007.