Some four years ago, Tom Daulton was given $250 million by GTCR Golder Rauner LLC, a private equity firm that specializes in the health care industry, and was told to purchase a medical device company that had the potential to be turned into a public company. Fortunately for Daulton there was such a company for sale, and it had everything he wanted.
That company was called Biopsys, which had been acquired by Johnson & Johnson’s Ethicon Endo-Surgery for about $310 million 12 years prior to Daulton’s search. Ethicon renamed the business Mammotome after the company’s breast biopsy system, which was the first vacuum-assisted, minimally invasive system for determining breast cancer.
Over the years additional image-guided products were introduced and the Mammotome brand became the market leader in breast biopsies. More than 4 million women worldwide have had an image-guided, minimally invasive breast biopsy using the Mammotome Biopsy System.
“Mammotome is like saying a generic term like Kleenex — that’s how well-known the name Mammotome is,” Daulton says.
Eventually, the biopsy procedure moved out of the hands of surgeons and into the hands of radiologists due to the extensive imaging used. Since Johnson & Johnson was focused on the operating room, it decided it was best for Mammotome to find a new home.
“That’s right about the time I was looking,” says Daulton, CEO of Devicor Medical Products Inc., the parent company for medical device businesses such as Mammotome. “GTCR and I had been talking for years and said, ‘Let’s go see if we could build, through a series of acquisitions, a $500 million revenue, $100 million earnings medical device business.’
“I said, ‘OK, let’s try it.’ They gave me $250 million and told me I could borrow additional money and wanted me to find an excellent business to acquire as a platform to build a much larger company so that GTCR could take it public.”
Daulton looked at 125 businesses before he found Mammotome.
“I narrowed it down using a thesis for what I thought was the best type of business that included being physician specific, the reimbursement pathway was clear and it needed a regulatory path that made sense,” he says.
With those three criteria serving as a crude filter for what company would be acquired, Daulton purchased Mammotome in July 2010 and headquartered it in Cincinnati.
“This was a great business to acquire,” Daulton says. “It’s in a very, very important clinical space of breast cancer, which has no cure. It’s worldwide, and the product is excellent for the patient, hospital and doctor.”
Now, three years later, Mammotome is growing at a blistering pace. There are offices in France, Germany, Italy, Shanghai, Tokyo and the U.S.
Here’s how Daulton redeployed Mammotome and gave the business new life.
Turn assets into a business
Daulton was searching for much more than just a company to acquire and grow. His search was for a business that could become much larger by acquiring additional businesses and going public.
“I was looking for a platform,” Daulton says. “When you look at the company does this thing have water coming over the fourth bulk head and there’s no way, or if you just turn on the pumps and build a better mouse trap will you have a good fighting shot. We felt Mammotome was an excellent business.
“It was in a wonderful market space, a global market space, in an important clinical area that wasn’t going to be fixed soon, and a little bit of innovation was going to go a long way.”
The type of acquisition Daulton did with Mammotome is one he calls an “uber carve out.” Everything, short of some employees had to be created.
“A carve out is a place to create tremendous value,” he says. “Anybody that can take assets and turn them into an operating business with revenue, gross profit, cash flow, and net earnings, that’s pretty hard to do.”
Daulton’s first step after acquiring Mammotome was to bring in a team of eight very experienced people. His goal was to hire by function, with each function serving as a spoke on the wheel.
“To run a company like Mammotome we literally brought in a CFO, a corporate strategy M&A person, a head of HR, a head of sales, a head of marketing, a head of regulatory and quality, and a head of manufacturing,” he says. “We literally set up each one of those functions, and each one of those functions built their infrastructure. Had we not done that, we would have gotten lost.”
Once a team was in place Daulton had to put a lot of focus on what would build value for the company.
“If you’re going to take the company public one day, what builds value?” Daulton says. “We were pretty ruthlessly focused on those two or three things, and in our world that was quality, cost and people.
“We hired 300 people in 24 months. There was a tremendous focus on finding people that could deal with a blank sheet of paper. A carve out is not a place for someone who hasn’t done the job you’re looking for.”
Now that he’d purchased Mammotome and found his executive team, Daulton’s hard work was just beginning — he had to build up and grow the business.
“We started with about 120 people and today we have about 560,” Daulton says. “We have grown substantially. That’s a blistering pace in those 24 months and we had to do everything.
“What I essentially bought was assets. I didn’t get a building, a computer system, all the employees, accounting, a factory, nothing. In 24 months I took the Johnson & Johnson folks and some other people that we brought into the company and literally built a $200 million company.”
Daulton built a state-of-the-art medical manufacturing factory. He and his team put in all the systems — marketing, finance, regulatory, etc. While all that was being done, there was a second thing that had to happen — the products within the company were starting to get old and updating was in order.
Update the business
The original Mammotome, while state-of-the-art when they launched it, was now old, outdated and losing competitive share.
“I think people get way too excited to make stuff that no one wants to buy,” Daulton says. “In our world it’s much easier. Is it faster, safer, less expensive, gets a better diagnosis? It has to do something better or you’re wasting R&D dollars. If you can’t answer those kinds of questions crisply, you’re wasting money. We spent a lot of time answering those questions.”
Two things happened that necessitated innovation for Mammotome. No. 1 was concern in hospitals around minimizing exposure to blood and blood-borne pathogens. No. 2 was doctors wanted the procedure to be faster because the patient is awake, has anxiety and the needles look pretty big.
“Even though everybody was trained on it, it worked incredibly well and it made the best quality sample, these other two things started seeping their way into the technology and Mammotome slowly started losing sales in the U.S.,” Daulton says.
“Our device, while still the worldwide market share leader, was a little like the Sony Walkman. When it first came out it was awesome, but other ways to do it started coming out.”
A development program was started in 2004 to see if a new product could be made that not only fixed its two issues, but also added a whole new clinically relevant feature. Mammotome had started that project, but Daulton inherited the business halfway through the project.
“It cost me $40 million to finish it,” he says. “There was a clinical need in this new ultrasound space, so we took some really bright engineers and marketers and talked to a lot of customers and made a product that fit that and reintroduced it.
“The new product not only addresses the speed and the closed system, but what’s most important now is how fast you get the patient in and out without compromising anything in the procedure.”
Daulton’s $40 million investment in R&D happened in the first two years of acquiring the business and it got the company a new version of Mammotome. The company also developed a whole new product called Elite, which is a tether-less, self-contained, battery-powered biopsy device.
“That was a massive undertaking between getting the old products to grow and then moving puzzle pieces around to build and grow the business,” he says.
Don’t rest on your laurels
Despite all the growth, innovation and success Daulton and Mammotome have seen in the first two years plus, there is no time to relax. Daulton is focused on introducing new technology and further growth opportunities.
“We’re very interested in acquisitions that make logical sense to the customers we call on,” Daulton says. “We’re not interested in acquiring things just to generate revenue or profits. We’re interested in things that our sales people know how to sell and that our exact same customers already buy and we can add some value.
“What value do we bring to them and what value do they bring to us? If you can’t answer those two questions crisply, you should not make the acquisition.”
The company also plans to expand further globally.
“Our Asia business in three years could be larger than our U.S. business just based off the sheer growth of the population and the trajectory of the business,” he says.
To accomplish all of that, it is very important that Daulton and Mammotome have the right team in place.
“You’re not going to be successful unless you’ve got a bunch of people that are really motivated, really smart, know what to do, and feel like they can make a few mistakes and they won’t get in trouble,” Daulton says. “Those people have to be led by people who have enough experience that we don’t drive this thing into a ditch. There will be guardrails so that we can take a few chances and a few risks, but still get down the road in the right direction.”
How to reach: Mammotome, a division of Devicor Medical Products Inc., (513) 864-9000 or www.mammotome.com
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The Daulton File
Mammotome, a division of Devicor Medical Products Inc.
Born: Ames, Iowa
Education: He went to Arizona State University and received a degree in marketing.
What was your first job and what did you learn from it?
I worked at a camera store. I started when I was 14. I learned that working builds character.
What is the best business advice you’ve ever received?
Focus on the customer and really give them what they want. Also, call them proactively, even if it’s bad news. People want you to be truthful with them.
Who is someone you have looked up to in business?
My father, Merritt. He was a very successful, local, small-town merchant who had a great reputation and worked really hard.
What are you excited about at Devicor/Mammotome?
I think we’re going to have a very sizeable company. Things are going incredibly well with the new products and the employees are really excited and the customers are excited. If I cast forward three years, I think we have a good opportunity to build this to the $500 million mark.