Behind the Lumenis makeover

Tzipi Ozer-Armon credit:Rami Zarnegar

Veteran Israel medical device company Lumenis had its ups and downs, but with Tzipi Ozer-Armon in charge, its value has gone one-way.

The operation was a success: How Lumenis' CEO quintupled the company's value Ever since Tzipi Ozer-Armon was named CEO of the Yokneam-based medical equipment company, the company's value has improved beyond recognition, including two sales to foreign investment funds. "I believe in managerial depth," Ozer-Armon once told "Globes". Gali Weinreb Late last week, Lumenis signed on the $1.1 billion sale of its surgical business to medical equipment giant Boston Scientific, just two years after Lumenis a a whole was acquired for a similar amount by private equity fund Baring Private Equity Asia. Once the sale is closed, in a few months, Lumenis will continue operating its medical aesthetics and ophthalmology divisions, over which it retains ownership.

Yokne'am-based Lumenis was founded almost 30 years ago, and is one of the oldest Israeli medical device companies. It was one of the first Israeli healthcare companies on the American capital market. During its first decade, it underwent dramatic upheavals, rising, crashing after a failed merger, followed by a struggle for control that led to the founder's removal. In 2006, Lumenis's stock was delisted from the Nasdaq, after the company became heavily indebted, and because of accounting irregularities.

The watershed moment, say sources close to Lumenis, came in 2012, when Tzipi Ozer-Armon was appointed CEO of the company. Since then, the company's value has improved beyond recognition, as proven by its reissue on Nasdaq, its sale to the private equity fund XIO Group in 2015 for $520 million, and its sale at double that value to Baring Private Equity Asia in 2019. Ozer-Armon has survived three ownership handovers, and is apparently currently preparing for the possible sale of additional activities.

"The money will probably go to Baring"

According to a capital market source familiar with Lumenis, "The surgical division that was sold is the most profitable. The company's annual profit is about $70-80 million, of which about $50 million comes from this division. Boston Scientific already distributes Lumenis surgical products, which are mainly aimed at the urology market, and they were apparently happy to make these products their own.

"The money that's currently going to Lumenis probably won't stay there, but will somehow go to Baring, which will later sell the other two divisions as well. Market insiders already say the aesthetics division is for sale, and I believe they could get another $400-450 million, a multiple of about triple its revenue. Ophthalmology, which is a smaller division, may be sold for another $200-300 million, meaning that Baring will end up doubling or tripling its leveraged investment."

The same source notes that the company's R&D site in Yokne'am, which employs about 450 people and is expected to serve as a base for Boston Scientific's operations, "Includes a mix of development personnel from all the divisions, and the process of separating it out for the purposes of the sale will be quite complex. This is also true of Lumenis's marketing company in China, which markets products from all divisions. "

The rise, the fall and the recovery

Let's review a bit of history, and Lumenis's return from the abyss to the present day. The company, then called ESC Medical Systems, was founded by Dr. Shimon Eckhouse in the early 1990s, and dealt in intense pulsed light source therapies. ESC issued shares on Nasdaq in 1996 and within a year and a half year had shot up from a $200 million IPO valuation to a market cap of about $1 billion.

The acquisition of another Israeli company, Laser Industries, which dealt in surgical laser systems, did not go well. The stock plummeted, leading to a power struggle that ended in Eckhouse's ouster by Arie Genger. But the aftermath was no better: following a leveraged buyout by an American company, and the entry of competitors into the field, Lumenis incurred heavy debts, and was even delisted from trading on Nasdaq in 2006 due to irregularities in its financial statements.

Viola Ventures and Ofer High-Tech Group, investment funds owned by Shlomo Dovrat and the Ofer brothers, recognized and took advantage of the opportunity to buy Lumenis from its largest creditor, Bank Hapoalim. Gradually, under these two investment funds, Lumenis began recovering. As mentioned, the change for the better began when the new owners recruited Ozer-Armon, previously CEO of Teva Japan and then head of SanDisk's USB division.

Ozer-Armon immediately began cutting expenses, eliminating two less significant divisions (veterinary and dental), and restructuring the company by activity rather than by geography. She refocused R&D so that it would truly serve the products; and only after debt was eliminated and growth returned and the company began to make a profit did she increase investment in R&D, and took great pride in the revenue from new products.

"I got rid of the VPs - I worked with the base"

In an interview with Vered Ramon-Rivlin of "Globes" in 2015, Ozer-Armon explained that, to facilitate change, she had to fire a large part of the previous management. "I encountered a group that thought what it was doing was fine. They all believed everything was great, but everything wasn't great. I understood there was no way to win with that team. I knew I would get nowhere. When each one was telling me that everything was fine with him and the problem was with the other guy, I understood that these weren't the people who would take me forward.

"I discovered that the middle managers who reported to the VPs were very good in terms of quality, but weren't coordinated. I decided to empower them and work with them directly, not through the VPs. Giving up on the VPs allowed me to replace them one by one. I worked with the base."

According to Ozer-Armon in that interview, sales were stagnant and profitability declining. "With a rapid analysis, I came to the conclusion that the source of the problem lay in three factors: operational inefficiency, lack of new products, and a large bank debt.

"The company didn't believe it could increase profits without increasing sales. We put an emphasis on lowering product costs, at every step, including redesigning significant components. The improvement in profitability freed up financial resources that we invested in marketing and new product development."

"Down to the details in the deepest sense"

In that interview, Ozer-Armon attributed her success to curiosity, among other things. "I read clinical trials; not many CEOs do that. I believe in managerial depth. I was in Germany this week, I went and talked to doctors, I watched two operations, I was trying to figure out what was bothering them in the operating room, and what would make them work with me. I saw a competitor's equipment in the operating room, and asked what they thought of it. My probing stems from curiosity and being aware, and has an effect on the organization. It's delving into detail in the deepest sense. "

She added, "I'm an inquisitive person, and I believe you should enjoy your work. Once every quarter I gather the employees and tell them: 'In the end, we invest most of our lives in work, so we've got to have fun.' At our management meetings, we laugh, tell jokes, and that's just fine."

The goal was to get back to the Nasdaq

In 2012, with Ozer-Armon's appointment, the stated goal was to relaunch on Nasdaq. The move was made in 2014 with an offering at a valuation of over $400 million. Before the offering, between 2012 and 2013, Ozer-Armon increased revenue by 10%; profits grew from $6.7 million in 2012 to $17 million in 2013. The growth in profitability brought the aesthetics and surgical divisions to similar size, while the ophthalmology unit accounted for about 20% of activity.

These data were satisfactory enough for private equity fund XIO to acquire the company about a year later, and delist the shares. Since the company is now private, it is difficult to know exactly what is happening with its revenue and profitability. However, these can be deduced from the value at which Baring acquired it - as mentioned, twice what XIO paid. In 2018, according to unconfirmed reports, Lumenis's revenue was $400 million, almost double that of 2015.

Published by Globes, Israel business news - en.globes.co.il - on March 10, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Tzipi Ozer-Armon credit:Rami Zarnegar
Tzipi Ozer-Armon credit:Rami Zarnegar
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