The visionary Featured

8:00pm EDT July 28, 2006
 Shaking hands on close to $2 billion worth of acquisitions in six months could make any CEO shudder, but Jim Mazzo, chairman, president and CEO of Advanced Medical Optics Inc., doesn’t seem rattled by the experience.

Look a little closer, and you can chalk up Mazzo’s calm response to a carefully crafted plan, some key leadership decisions and a board custom-made for the task.

AMO, a medical device manufacturer, was spun off from Allergan Inc. as a public company in 2002 and has grown its revenue from $543 million in 2001 to $920 million in 2005; its recent guidance projects 2006 revenue to exceed $1 billion. Much of the revenue bounce is attributable to two large acquisitions made in an eye-popping six-month stretch of 2004.

In June 2004, AMO completed the acquisition of Pfizer Inc.’s ophthalmic surgical business for $450 million, and by November of that year had an agreement to buy VISX Inc., a global player in laser vision correction, in a deal valued at $1.3 billion.

Mazzo says a clear articulation of the company’s strategy from the outset has allowed it to make key acquisitions to complement its catalog of optical products and organic growth.

“When we first spun out, we put together a foundation strategy plan. We identified areas where we knew we had product gaps, either because we didn’t have a rich pipeline or we were at a competitive disadvantage,” says Mazzo, a 27-year industry veteran. “Then we looked at trends that were going to be upon us in that three-year timeframe.”

If the company didn’t have a product that would be ready in time to address those trends, it started looking at potential acquisitions to fill the gap.

Integration considerations
AMO’s first major acquisition was the ophthalmic surgery business from Pfizer. Mazzo says the acquisition went exceptionally smoothly, but he didn’t allow that lull him into thinking that bringing the business into the AMO fold would be easy.

“When you say you want to do acquisitions, that’s easy to say,” Mazzo says. “The second easiest thing to do is to write the check, but the most difficult is the integration.”

A majority of Pfizer’s human resource assets were outside the United States, mostly in Europe, so the integration issues went beyond systems and infrastructure. Mazzo, who has lived and worked in Italy and Great Britain, knew that AMO had to account for cultural differences to make the integration successful. Even within Europe, Mazzo says, the differences in culture can be striking.

Prior to the acquisition of the Pfizer business, Mazzo assembled an integration team that consisted of representatives from all major business functions within the organization. The team worked on the integration full time. Mazzo put Holger Heidrich, AMO’s head of European operations and European himself, in charge of the integration. Heidrich was familiar with the cultural sensitivities and the business climate in Europe, ranging from workers’ counsels to the regulatory environment. Mazzo took away Heidrich’s regular full-time responsibilities for the rest of the year so he could concentrate on the integration task, with his and his team’s salaries and bonuses tied to their performance on the integration task.

“You can’t make integration a night job,” says Mazzo. “We all had to pick up some of his responsibilities. We put him and the team in charge of the integration.”

The goal was to make the transition seamless for the customer, says Mazzo. AMO salespeople were trained in the Pfizer products, and former Pfizer sales personnel received comprehensive training in the AMO product lines. All of the acquired company’s customer service functions were transferred to AMO.

The second purchase, the acquisition of VISX Inc. in 2004, posed a different integration challenge and opportunity.

Ophthalmic surgeons tend to purchase all of their products from a single source, so the marriage of AMO and VISX offered the opportunity to expand the VISX products line globally. VISX’s assets were entirely in the United States, where the company held a 60 percent market share. The AMO distribution and marketing structure were leveraged to expand the VISX line internationally, using distributors where there were existing relationships and selling directly to the end-user where those ties were strong.

“We replicated the VISX model internationally, so it’s not just about selling the technology but also providing a service to completely surround the practitioner with the highest level of support, including a drive toward increasing his or her marketing skills to, in turn, drive more patients into the office,” Mazzo says.

Mazzo put a member of his senior management team in charge of the process. An integration team similar to the one put into place for the Pfizer integration was formed, and again, this became the team’s full-time responsibility.

Preparing the organization
Mazzo says the acquisitions would not have been made without the company’s commitment from the start. Key to the growth plan was putting someone in a position where they could have their hands on both the acquisition activity and the internal product development to prevent duplication of efforts. Mazzo hired Jane Rady, now vice president, strategic and corporate development, and an executive with both R&D and business development experience, to coordinate acquisition activity and organic growth.

“By having R&D, as well as corporate development, report to Jane, she then knew where we were going to spend our internal R&D dollars so we wouldn’t spend money in areas where we were going to go out and acquire,” Mazzo says.

“She was also in charge of the strategic plan, so I really encumbered her with three major responsibilities because they were so linked.”

In an age when corporate directors can be slow to put the stamp of approval on deals that even hint at putting them in jeopardy, Mazzo knew that AMO’s board would have to have some industry experience. So he assembled a board of individuals who could appreciate the potential of a given product or prospective acquisition and who would have the confidence and background to make fast and effective decisions.

Assembling a knowledgeable board would allow Mazzo to pull the trigger on a deal before it slipped out of his hands.

“I was able to select the board and purposely went out for medical device specialists, people that understood medical devices, which helps you understand ... your acquisition target,” says Mazzo.

To cement the relationship between the board and senior management, Mazzo matched board members with a management team member and encouraged them to interact between board meetings, leveraging the experience of the board and keeping them apprised of what was occurring in the business. The arrangement has proved to be a valuable one, particularly during the acquisitions, when complex issues can arise and large amounts of information have to be absorbed and considered by board members to make critical decisions.

“Each one of my board members ... has a direct relationship with one of my direct reports, both as far as updates on the business as well as for mentoring,” says Mazzo. “I’m not there at all. There are frequent direct conversations. So the board had an opportunity to stay abreast of the situation. I could not afford ... to wait for an educated board, to wait for a meeting every three or four months.

“So they’re having periodic conversations, not only with myself but with my direct reports. They were sensitized to the strategic issues and the necessity for us to move fast.”

That was particularly valuable during the six-month period when AMO was making two acquisitions. A board without a high degree of confidence in the plan and awareness of the situation might have balked at back-to-back acquisitions.

“The landing gear wasn’t even down yet, and we already started to do another acquisition,” Mazzo says. “If we hadn’t fully engaged the board, both from a strategy standpoint and how (the Pfizer acquisition) was going, there was no way that any prudent board would say, ‘Oh yeah, go ahead, do another acquisition,’ especially for a very young company and a very young team from an experience standpoint,” Mazzo says. “As they became more comfortable with my direct reports ... that’s added to the confidence that that integration could be accomplished.

“So when they all come back and meet periodically at the board meetings, they understand the same issues, what we’re doing well, what we’re not, so consistency adds to the credibility.”

Finding the deals
Finding good acquisition targets means knowing where to look and figuring out if they make for a good fit. Every month, AMO holds a major business review, at which a small group including Mazzo, AMO’s general counsel, the head of R&D and the chief marketing officer look at business opportunities, including acquisition possibilities. If a potential acquisition passes muster, they bring together a small team to study it.

Mazzo maintains a sounding board of medical professionals that he consults with on a regular basis to get a sense of how the businesses look and feel from a practitioner’s perspective.

“I have a group of 30 physicians that I call every other month, 15 one month, 15 the next month, that I bounce these technologies off of,” he says. “That helps us identify quickly, from a customer standpoint, if this is going to work or not.”

With two large and successful acquisitions under his belt, Mazzo says that others that come down the line can be as smoothly integrated into AMO as the first two. And with a positive buzz about the deals in the industry, Mazzo says AMO gets the inside track on deals that it might otherwise miss.

Says Mazzo, “As you become successful with acquisitions, you hear about a lot more opportunities.”

How to reach: American Medical Optics Inc.,