Fox Paine Grinds Out Win With Maxxim –

The sign of a great golfer is that they can still score well on their worst day. Tee shots veer into the trees, chips fly the green, two-putts become three-putts, yet somehow the good ones still manage to finish the round with more circles than squares on their scorecard.

Grinding out a win is not necessarily confined to golfing. Fox Paine & Co., after an ugly start to its investment in Maxxim Medical Inc., managed to eke out a similar win.

Fox Paine acquired Maxxim Medical in 1999. The company, a maker of surgical gloves, gowns and other hospital products, had just merged with urological equipment maker Circon Corp. The merger had helped Circon avoid a hostile takeover by United States Surgical Corp., which had been making entreaties to buy Circon since 1996. (The proxy battle for Circon ended up becoming the longest ever hostile takeover fight.) While the merger helped Circon ward off United States Surgical, it did little for Maxxim’s stock, and the company’s chief executive ultimately engaged Fox Paine to take Maxxim private.

Immediately, Fox Paine split the businesses. Maxxim continued on with its management in place, but Circon needed work. “They decimated their own company in fighting the proxy battle,” Fox Paine Co-founder Saul Fox told Buyouts. “There was virtually no management in place, they had stopped spending on [research and development] and that had led to a further exodus of their key engineers.”

But while Circon appeared to be the dog, four years later it was Maxxim that succumbed to a heavy debt load and had to enter bankruptcy protection, erasing Fox Paine’s $120 million equity investment. Fox calls that investment the firm’s one bad apple from its first fund.

The Grind

After the initial split from Maxxim, Fox Paine took a number of steps to help Circon rebuild. The firm hired new management, filling the CEO, COO, CFO, R&D head and HR director positions, among others; moved the company’s operations from Santa Barbara to the Boston area; changed the name from Circon to ACMI (American Cystoscope Makers Inc.), reflecting the company’s most popular brand; and reworked ACMI’s strategy, tightening its focus from general endoscopy products to just urological scopes. (Endoscopes are medical instruments used to visually examine the body’s interior). Despite all the work, though, the success in the Circon investment can ultimately be traced back to a chance visit to Circuit City.

“I went shopping for a video camera at Circuit City,” Fox relayed. “I hadn’t been there for quite some time and was amazed at how small the cameras were. At our next board meeting…I mentioned that the chips are obviously getting smaller. [ACMI has] got to be at the point where we can start making the scopes digitally.”

Long story, short, ACMI’s products evolved from its 1970s holdover technology (thousands of fiberglass strands in a rubber hose) to the first digital endoscopes to hit the urological market. But it wasn’t quite as easy as it sounds. Besides developing the technology, ACMI had to find the right chips to go with the technology, initiate an overseas joint venture and sidestep certain patent issues. Eventually ACMI acquired Israeli tech outfit CByond Ltd., the company with which it had initiated the joint venture. Within 18 months, and still under budget, the company had developed one of the smallest digital video cameras in the world, roughly the size of a poppy seed.

From being a throw-in to Fox Paine’s original Maxxim deal to regaining its spot as a market leader, ACMI again began attracting competitive interest. In June, Fox Paine sold ACMI to Gyrus Group plc, a U.K. medical device company. The $500 million purchase price was an 88% cash deal, with the rest coming in the form of Gyrus stock. The combined company creates the No. 2 medical device business in the U.K.

Fox Paine, meanwhile, was able to generate an IRR north of 20% from the transaction, and realized a return of almost three times its ACMI investment. Meanwhile, the success of ACMI also helps to clear Fox Paine from the scar the Maxxim bankruptcy left on its portfolio. Fox notes, “We didn’t just recover, but we made back all of the money we lost on the [entire] Maxxim deal, plus an overall profit.”