Maxxim Medical Inc.
Maxxim Medical Inc.
104 Industrial Boulevard
Sugar Land, Texas 77478
Fax: (713) 240-2557
Incorporated: 1981 as Henley International Inc.
Sales: $190 milliony
Stock Exchanges: New York
SICs: 3841 Surgical and Medical Instruments; 3842 Surgical
Appliances and Supplies; 3845 Electromedical Equipment;
2389 Apparel and Accessories, Not Elsewhere Classified
Maxxim Medical Inc. is a diversified manufacturer of specialty medical products, including disposable procedural trays, advanced diagnostic equipment, physical therapy products, and rehabilitation and fitness equipment. The company expanded briskly during the late 1980s and early 1990s by acquiring other companies and improving its existing operations.
Maxxim Medical is the offspring of a company started in the late 1970s, Henley International Inc. Henley was the creation of inventor and entrepreneur Ernest (Doc) Henley. A university professor and chemical engineer by training, Henley was known by his friends and associates as a thinker and tinkerer. Evidence of Henley’s inventive nature came in the early 1970s after he took his son to a physical therapist for treatment of tennis elbow. Part of the therapy included a hot whirlpool. After observing the therapy, Henley became convinced that he could develop a significant improvement to traditional hot-water therapy.
Henley’s idea stemmed from physics. He knew that the human body could tolerate higher temperatures if the heat emanated from a dry source. The problem was that air is a very inefficient way to transmit heat through the skin and into the tendons and muscles. In 1973, he came up with a solution to the dilemma, a tool he dubbed the Fluidotherapy device. Henley’s invention used ground corn husks circulating inside a box where patients would stick their arms or legs. Like a whirlpool, the “corncob special,” as therapists called it, increased blood circulation, thus stimulating healing and improving range of motion. Henley had experimented with glass beads and synthetics, but finally choose corn husks. The corn husks made it possible to operate Henley’s invention at temperatures as high as 120 degrees Fahrenheit, while whirlpools were generally limited to 105 degrees.
Henley patented his invention and spent several years during the mid-1970s perfecting it. He and his son, Davis Henley, started to market the product in 1979. Unfortunately, the startup venture, incorporated as Henley International in 1981, lacked funds and made little headway. But, in 1982, Henley’s efforts came to the attention of another Texas-based company called Intermedies. Intermedies was a leading manufacturer of pacemakers in the United States. The company’s head of business development at the time, and the man that was most interested in the Henley venture, was Kenneth W. Davidson. The 35-year-old Davidson was a Canadian citizen. He had worked for medical industry giants Baxter and Merck as a salesman and marketing executive before joining Intermedies.
Davidson had met Doc Henley through his work at Intermedies and was impressed with his company’s technology. Davidson even convinced Intermedies to grant Henley $500,000 in seed money to get the venture off the ground. In return, Intermedies got 30 percent of the company and Davidson got a seat on Henley International’s board of directors. “At the time I didn’t think that it was much of a perk,” Davidson recalled about his appointment to the board in Houston Business Journal. “It was a three-employee company with one product.”
Davidson and Doc Henley had a good business relationship. Davidson respected Henley’s technological and creative intelligence, and Henley admired Davidson’s business intuition and willingness to support his ideas. Davidson’s interest in Henley International was cemented after he visited a physical therapy convention with Davis Henley. Davidson was intrigued by the contrast to the medical products conferences in which he had participated in the past. “When you walk in the door [of a typical medical convention] you see a bunch of little 10-foot booths of people trying to get someone to listen to their story, and a couple of 100-foot booths two stories high belonging to Baxter or Johnson & Johnson,” Davidson told Forbes. “But when I first went to the APTA [American Physical Therapy Association] convention, I saw only 10-foot booths. Nobody owned the market.”
Davidson felt challenged by the lack of market leadership in the physical therapy products industry. So, during the early 1980s he helped the company try to market the Fluidotherapy device. Meanwhile, Doc Henley continued to work on the research and development of new products for the business. Although the Fluidotherapy device never turned into a boon for Henley International, it carved out a profitable market niche. There was no statistical evidence to prove that it outperformed traditional whirlpool therapy, but most therapists and patients agreed that it was a preferable form of treatment. Furthermore, because it did not use liquids, there was no threat of bacteria transmission and, therefore, no cleanup required. The cornhusks were eventually replaced with synthetic pellets and the device was marketed as therapy for arthritis sufferers.
Davidson and the Henleys chose a good time to get into the physical therapy industry. An aging population and a steady increase in sports-related injuries were two factors driving market growth during the 1980s and 1990s. During the 1980s, in fact, the number of physical therapists in the United States rose about 50 percent, as did the number of accredited physical therapy training programs. As the scope and number of physical ailments proliferated, therapists sought new treatment methods and improved equipment. Henley International benefitted from the industry growth, and its sales increased to more than $5 million by the mid-1980s.
Encouraged by the success of Henley International, Davidson left his post at Intermedies in 1986 to run the venture. During the next few years, the company expanded rapidly by diversifying its product line to include a number of offerings geared for the growing physical therapy, home pain management, and disposable hospital products markets. Davidson’s growth strategy was founded on two key assumptions: 1) demand would continue to rise for procedures and products that reduced health care costs and facilitated in-home care; and 2) an aging population and an increase in sports-related injuries would spur expansion of the physical therapy markets.
Henley International expanded through acquisition during the late 1980s. Davidson bought underperforming companies or divisions with products that complemented Henley International’s products, cut their operating costs, and integrated their products into Henley International’s marketing network. Among Henley International’s more successful acquisitions was its buyout of a high-tech line of exercise/physical therapy equipment from Living Well Inc. In addition, Henley International’s research and development efforts spawned several new products that boosted profits. By the end of the 1980s, Henley International’s research efforts had yielded 22 patents.
One of Henley International’s more successful products was Chempad, a bandage-like pad that transmits drugs through the skin. The gauzy adhesive was used to transmit localized painkillers to aching muscles. The National Basketball Association began using Chempad soon after its release. Other Henley innovations included electrical transmitters that blocked chronic back pain, a device used to measure how much weight a person can repeatedly lift safely, and high-tech devices designed to prevent mistakes during laser surgery and to prepare patients for surgery faster.
As a result of six acquisitions and several new product introductions, Henley International’s sales rose to $17 million in 1989, $685,000 of which was net income. By 1989, Henley International had had average annual growth of more than 50 percent since 1986. Moreover, income had nearly doubled to $1.2 million in 1990 as revenues increased to $27 million. The company’s growth was expected to continue, if not accelerate, during the early 1990s. Henley had a host of new products waiting for federal approval and was engaged in several new acquisitions in the early 1990s. For example, in 1990 Davidson engineered the buyout of North Carolina-based White Knight Health Care, which boosted Henley International’s 250-mem-ber work force by 100.
Despite Henley International’s many acquisitions, Davidson had succeeded in keeping Henley International’s debt burden low; in the early 1990s it was about $3 million. To raise addition capital for expansion, Davidson took the company public in 1990 with a stock offering on the NASDAQ. Doc Henley remained the company’s largest shareholder with a share of about 32 percent. That share, combined with interests held by Davidson and Henley’s two sons, gave the foursome more than 50 percent ownership of Henley International. The company’s worth was estimated at more than $15 million in 1990. Despite the fast expansion, Davidson considered Henley’s gains conservative. “We’ve just been building slowly,” he explained in Houston Business Journal
Although Henley International’s exploits were beginning to get noticed on Wall Street by the early 1990s, just as much attention was being focused on the company’s unorthodox chief executive. Davidson’s image was that of a corporate rebel with an eccentric flair. That perception was largely attributable to his status of aging rock-and-roller. With the exception of his long hair and drooping mustache, Davidson almost looked at home in his corporate suit and tie. But he appeared even more comfortable in his rock and roll garb—playing guitar, singing lead, and belting out tunes from the 1960s and 1970s with his group, Live Band. The band chose the name because “every club in Houston has a sign with ’Live Band’ outside so people think we play all over the place,” Davidson explained in the New York Times.
Live Band was comprised of a group of Henley executives, including chief operating officer Peter M. Graham. Graham and Davidson had played in a band together in Ontario during college and had performed their first impromptu concert at Henley International in 1985. Vice-president for marketing, Dan Lavelle, played drums, retail sales coordinator, Valerie Moulton, played the keyboard, and engineering manager, Norwood Brown, played guitar. Live Band played about 15 concerts per year in the early 1990s for its employees and customers, and for charity events. An 18-wheeler hauled the band’s equipment and Saturday morning jam sessions were held at company headquarters in the music room, which was packed with $50,000 worth of instruments and lighting equipment. The band also played for workers at newly acquired companies as part of an effort to put the new employees at ease.
In addition to the rock band, Davidson spiced up the Henley International organization with an eclectic array of other pursuits and investments. The company sponsored a basketball team, and Davidson himself could sometimes be found shooting hoops with Henley International personnel. Davidson also started a Canadian Curling team, which was one of only nine in Texas. The company sponsored a Florida drag-racing team, as well, and Davidson had been known to sit behind the wheel. “It’s a neat feeling to go from zero to 170 miles per hour in five seconds,” Davidson remarked in Houston Business Journal “It’s a rush.”
Henley International’s growth during the early 1990s mirrored the acceleration of the company’s drag car. Besides bringing numerous new products to market, Henley International added 12 companies to its roster between 1990 and early 1994 and built up a reservoir of more than 11,000 different healthcare-related products. Among its acquisitions during the early 1990s were three stand-outs: Argon Medical, Boundary Healthcare, and Sterile Design.
Henley purchased Argon Medical from drug industry giant Bristol-Myers Squibb in 1991. Argon was a leading provider in the fast-growing plastic catheter and disposable medical products industry, and the purchase added 350 workers to the Henley International payroll. In 1992, Henley International bought Boundary Healthcare, a top manufacturer of infection-control apparel worn by care givers in operating rooms. In 1993, the company acquired the Sterile Design division of Johnson & Johnson, making Henley International the largest producer of disposable surgical trays in the nation.
By 1993, Henley had evolved into more of a healthcare products company than a physical therapy company, with more than 80 percent of its sales coming from healthcare supplies and devices. Reflecting the organization’s growth and product diversity, Davidson reorganized the company and changed its name to Maxxim Medical Inc. He organized Maxxim into four operating divisions, each of which bore the name of its chief subsidiary: Sterile Design; Boundary; Argon; and Henley. In December of 1993, Davidson moved Maxxim to the New York Stock Exchange and made a second successful stock offering.
As Maxxim’s product base swelled, its sales and profits soared. Revenues rose to $130 million in 1993 as net income to $5.5 million. Only ten percent of its receipts were garnered overseas in 1993, but cross-border sales growth in 1994 reflected Davidson’s new found emphasis on long-term international expansion. Maxxim had achieved its heady gains without taking on significant debt. Maxxim had less than $6 million of long-term debt going into 1994. Furthermore, Maxxim boasted a cash reserve of over $40 million that was earmarked for future acquisitions and overseas expansion.
Going into the mid-1990s, Davidson continued to pursue his goal of making Maxxim into a global leader in the manufacture and sale of healthcare-related products and supplies. As Maxxim continued to bring new products to market, Davidson focused on streamlining internal operations, acquiring more companies, and penetrating international markets. Medica B.V., Maxxim’s fifth operating division, was purchased in January 1995. Medica was based in s’Hertogenbosh, Netherlands, and its 150 employees would represent European headquarters for Maxxim. Meanwhile, the company’s founder, Doc Henley, spent some of his time tinkering in the company lab, but his primary occupation was teaching chemical engineering at the University of Houston. “He’s just as likely to invent something on the beach as he is here,” Davidson explained in Houston Business Journal “But every once in a while he comes to board meetings and asks if there’s any money in the bank.”
Graham, Peter M, “Henley International Reports Financial Results,” Business Wire, June 6, 1990.
Koselka, Rita, “The Corncob Special,” Forbes, October 15, 1990, p. 174.
McNamara, Victoria, “Henley International Buys Medical Manufacturing,” Houston Business Journal, August 12, 1991, sec. 1, p. 15.
McNamara, Victoria, “Henley International: No Pains, Big Gains,” Houston Business Journal, September 10, 1990, sec. 1, p. 1.
Palmeri, Christopher, “The Future’s in the Tray,” Forbes, November 22, 1993, p. 14.
Payne, Chris, “Maxxim Medical’s Main Maverick: Kenneth Davidson Plays Rock, Races Cars, and Runs a Rapidly Growing Company,” Houston Business Journal, May 23, 1994, p. 14.
Promice, Eva, “When Management Is Born to Be Wild,” The New York Times, December 25, 1994.