Finding a Capital Partner for a Healthcare Services and Technology Company

Intro  0:00

Welcome to the Growth + Exit podcast, where owners of privately held middle market companies talk about founding, scaling, and exiting their businesses successfully. Learn how to maximize and monetize your business on your own terms, let’s get started.

Heather Bennett  0:30

Hello, I’m Heather Bennett, your host for the Growth + Exit podcast, featuring middle market owners talking about founding, growing, scaling, and exiting their businesses. Past guests include Kevin Fleming, Matt Vuckov, and Danguole Altman. To learn more about these guests and others, tune in to our episodes on Spotify, Apple, Audible, and all of the platforms that the Growth + Exit podcast can be found on. This episode is brought to you by Newport LLC, a team of seasoned executives who help CEOs of privately held companies grow, de-risk, and exit their businesses successfully. Newport LLC is a winner of the prestigious Inc magazine Power Partner Awards, a list of elite B2B companies from across the globe. To see the entire list, visit inc.com/power-partner-awards To learn more about Newport, visit us at Newportllc.com or find us on LinkedIn. Before introducing today’s guests, I would like to thank my partner, Newport Partner Mike Condron, for introducing me to my guest. You can find Mike Condron on LinkedIn or the Newport website, today’s guest is Tom Jacobs. Tom Jacobs is the founder and board member of MedHQ. MedHQ partners with hospitals, health systems, outpatient healthcare, ambulatory surgery centers, and physician provider groups to offer comprehensive advisory and administrative solutions under his leadership, MedHQ grew into a mission-critical partner for ASCs nationwide, and later partnered with 424 Capital, which we’ll talk about later, to accelerate that expansion. Tom continues to guide MedHQ strategic direction as a senior advisor and board member, Tom. Welcome to the show.

Tom Jacobs  2:26

Thank you. So glad to be here, Heather, and really appreciate Mike introducing

Heather Bennett  2:31

1. Absolutely. So tell me, how you got started with MedHQ. Where, where did your journey with MedHQ begin?

Tom Jacobs  2:39

Yeah, thank you. So after maybe six or nine years of looking to find a business that I could successfully start, and in then hopefully grow at the time, this is in the 1990s through actually a staffing agency that my wife was a partner in, and her and her, her, she was the chief operating officer, and her partner, CEO, had a relationship with an individual who wanted to launch a surgery center management company, and they actually found through that relationship started with a couple customers doing PEO, you know, professional employer organization work, which is HR, essentially, and back office accounting and finance, as well. And so they had these couple customers, they launched a business, but they had their day job, they had their staffing agency to run, and it was growing as an Inc five 500 you know, fastest growing firm, and, and, and looking for somebody to run this business. This opportunity, in my opinion, it’s not an overnight success story, because I’d been trying to find something for several years, but it, it had kind of landed in my lap through my wife and her, her relationships, and they were looking for somebody to run this, and then take it, take it beyond, and I just love the opportunity, and we’ll talk more about that, I’m sure, but that’s really where it started.

Heather Bennett  4:13

So, and then you know that’s sometimes what it is, is you’re you’re really preparing yourself to be ready when that opportunity happens, I call, like, hustle meets luck. It’s the idea that you’re hustling to always be prepared for that next amazing opportunity, and if you’re not prepared, then you won’t be able to do it. Sounds like you were very prepared for it. So,

Tom Jacobs  4:32

yeah,

Heather Bennett  4:33

what were you not prepared for? I would say, what were those first, like, five years like?

Tom Jacobs  4:39

Wow, you know, so first time ever running a business, obviously, that’s that’s a big deal, but yes, I did feel like I was prepared in a lot of ways, I had already years earlier started and failed in a very small business, it was the best $50,000 my wife and I ever lost, in my opinion, and. Because it just taught me so many things about what I shouldn’t do, and you know, number one, know what I’m doing, you want to get into it, but at least, at least to a minimal level, but other things that just happened, you know, early on were, you know, how do you really get, I think the toughest thing for any small business, I think, is finding your market and marketing to your market and getting true qualified sales leads outside of your kind of internal referral set, let’s say, and really expanding beyond that, that sort of close network of relationships, that close network of relationship is so powerful, but it’ll get you a certain to a certain point where you have something you can operate, but it’s really not a free-standing business until you’re until you’re really generating, you know, moving that or spinning that flywheel and getting the sales engine going along with maintaining operation. So that was that was the toughest thing, is really learning how to do that.

Heather Bennett  6:05

Okay, so so you’ve started to figure out how to get this moving. Who are you hiring at this point? Who are your first hires? And then you know after that, how are you choosing the leadership team? Because it sounds like it was growing at a pretty rapid pace,

Tom Jacobs  6:22

yeah. You know, it was, it was growing at a good pace. I mean, it was, it was something we could manage. But to your, to your question, Who did we hire? The key hire first was CPA, an accountant, and he is still my partner, and Dave Becker was a really critical key hire for a number of reasons. We provided accounting service, so he was the one leading that effort. Secondly, we made the decision to hire an HR professional, an expert in HR. Is maybe strange as this sounds, I don’t view myself as an as an HR expert or an accounting expert. I’m not a CPA, I’m not a, you know, SHRM certified HR person, but I love these, these services because I just think they’re so critical to every business. If you have really good HR and really good accounting, you have a lot of things going for you as a business, and I just really felt passionate about being able to offer that service to our customers. Yet I was not the best at this, and that was a blessing, really, because by hiring, by needing to hire people who are much better at it than I was early on, it helped, it let me kind of release that and not control it, and really work at growing the business, and in attending to all the things that are more strategic, perhaps, but you know that focused on letting the business really find its footing and then grow, so those are those are the two main, those are the two main hires that we did fairly early on.

Heather Bennett  8:04

Okay, and so you’ve been hiring some great people, you’re moving along. What, what was the point where you realized you really had a business? This wasn’t just a startup you were trying to get off the ground, this was a solid business that was working well.

Tom Jacobs  8:20

Yeah, and you know, we, you know, we had to find our footing, as I said, is we talked, maybe offline, about we had to find our footing and what market we’re going to be in, so making the decisions around, you know, what set of services we’re really going to offer, if we’re providing a PEO type services, up type service, there are a lot of variety of PEO businesses, and you really have to figure out what you’re going to do, accounting as well, what you’re going to do, but, but also in the, in the context of what we’re doing this in, is what’s happening in technology, you know, so I know today AI is, is everywhere. Everybody’s thinking about AI. Everybody’s thinking about, you know, how fast it’s going to come upon their business. Can can you stay competitive? Are your services going to be as they are today, or how are they going to change? They’re certainly going to change, but how are they going to change? And can you keep up? Back in 2002 2003 when we launched MedHQ, you know, the internet was fairly new. There was no cloud computing. There were no platforms that you could really tap into to deliver cloud-based service, quote unquote. And one of the things that we decided early on is that we’re not going to be a software company, you know, that’s not where we don’t have the capital for that, we don’t have the, that’s not the thrust of what we’re trying to do, we’re trying to provide, you know, professional services instead, however we needed to have it, an IT or a platform or a set of platform. Performs that we could, as I always thought of it, work through and use to engage our clients wherever they are, you know. We could, we could work with them through these platforms, and so, you know, really made for a kind of a fun business, you know, being a part of what’s going on technologically, finding a way to fit that into what was a valuable service to our customers. Ultimately, what we ended up doing with that is we enabled our customers to be very technologically savvy in their back office, so we had really good platforms that, you know, didn’t stay static, you know, so we, what we had in 2003 2004 we had to convert in 2009 in 2010 we had to convert again, in 2011 to 12, we had to convert again in 2017 and 18, so we’re staying on top of technology and really reinventing our technology over time, and that is a key thing for, I think, for our customers, is they don’t have to do that, it’s a heavy lift, and they get the advantage of us doing that for them. So, yeah,

Heather Bennett  11:14

technology is one of those major turning points as you’re growing and scaling the business. What do you think were some of the other turning points, not necessarily technology, but what were some of the other turning points as you were growing and scaling MedHQ.

Tom Jacobs  11:29

Yeah, I think you know once you get a an awareness in your market, so you know number one, focusing on a market and then marketing as best you can to that market, so in there, so we chose to focus in surgery centers, also a very dynamic and growing and very valuable industry to healthcare sector, kind of leading the way in that triple aim of low cost, high quality, and great customer satisfaction, or patient satisfaction, and I think you know, choosing that market and then gaining traction in terms of awareness of who we were, and I’m not saying everybody in that surgery center sector knew us, but we knew a lot of people, and that we really helped us get a referral network going, but then some things happen, we’ve talked about this kind of where preparation meets opportunity, you know, for us honestly, whether we agreed with the policy or not, the Affordable Care Act being enacted was a big deal for us, number one, it was very complicated and our custom customers needed help understanding it, so we were really on top of that and really digging into how it actually was going to work. What was the new structure like? How did it fit in with the small and medium sized business market? You know, how are they going to fit or not fit into the small group health plan or the large group health plan? All those things have just changed, and people wanted to know how to work, make it work for their business, for their surgery center, and we, we took that as an opportunity to figure it out, and do webinars, and do you know, client education sessions, and all that, and I think that’s where we turn from becoming being a sort of day to day good provider of service on the execution side, to some, we, we’d made that turn to being a valuable resource strategically for our customers, as they thought about, you know, how to manage their, you know, kind of the benefits and all the complexity that goes in the back office, and then all of the changes that have the, let’s say, American culture has gone through in terms of employees and the relationship employees have with their employer, and all those dynamics, and how they’ve changed, and then COVID hits, and the same kind of thing happens where you know the Cares Act and the other legislation that came about, our customers needed help, help knowing how to navigate that, how to, how to apply for a PPP loan, that’s language from a few years ago, but all those things that you know, all those things that happen sort of from the outside exogenous, exogenously, if I can say that, you know, all those things that happen if you’re prepared for it, and if you have a strategy and you have approach, you can, you can, those can be opportunities for your business as you look to continue to penetrate the marketplace,

Heather Bennett  14:40

yeah, and you touched on some important things too, with a highly regulated industry, the influence of laws on how to participate. One of the things I also really like that you talked about is that accountability for being a key thought leader, being a resource to the industry. And a lot of the guests that we’ve had on the podcast are the type of people who recognize the importance of that and do things like the webinars and the training and the educating and creating communities and events around their industry to provide that type of support. What do you think inspires leaders to do that, like you, to really like stand up and say we’re going to be there for the rest of the industry? This is not just for us, it’s not just for our company, but it’s really being there for the entire industry.

Tom Jacobs  15:33

Yeah, boy, that’s a great question, and so important, and I guess through, you know, parents and relationships, and but then school, and you know, MBA programs, you know, you have to decide kind of what you’re in this for, what you’re, what you’re going to work for every day, and that was part of the reason I wanted to, you know, own and operate my own business, is that you know I could be part of somebody else’s story or somebody else’s mission, which is fine, or if the my employer doesn’t really have a mission that I’m excited about, you know, to me that was always super important, is being very motivated to go to work every day and be a part of something that I think is bigger than myself, my earlier career was in nuclear power, which I’m glad it’s making a comeback, but when I was in it in the early days, I felt very proud to be part of an industry that provided a utility that everybody needed, you know, electricity, and I don’t know, I was an engineer, and it just made made me proud to have a mission like that, to go to work for work, to go to work on every day, and be a part of that industry. Now, it, you know, had some huge headwinds by the mid late 90s, so the writing was on the wall. I needed to go do something else, but I still wanted to have something that was mission oriented, and so I think when you have that perspective, and then these, and you set up your business, and you’re running your business, you’re not just, you know, executing payroll and providing benefits, and and doing accounting statements, and etc. Those things are important, but we always felt like we’re taking care of the people that take care of people, or we’re handling the sensitive information for employees, or for business owners, and all their financial statements, and their banking, etc. And so we really felt like what we’re doing is very important to our, to our market, to our clients, and we wanted to be as educated as we could possibly be, and help our customers really understand, you know, the critical things about that, and I guess we always had that mission, we always wanted to have that mission orientation, which does another thing too, so just decide, setting aside maybe the the mission part of it, what that I think did for us is that we were constantly or continually looking at, you know, focus, focus, focus. What is our mission? What are we here to do every day? What are we, what are we working at, and you know, if you listen to read something, somebody like Patrick Lencioni, and the five dysfunctions, let’s say clarity of mission, clarity, clarity, clarity is so important, and I think the five things that he talks about, I think that clarity thing is so important, clarity not only in what the mission is, but communicating that to your clients, communicating that to your customers, even your vendors, and I say even your vendors, to me vendors, you have strategic vendors and relationships like that, that are so important, but if you, if you’re clear, clear to everybody that is part of your team, or that you’re delivering service to, that’s just so important, and I think being sensitive to caring about your mission helps you work at how you being clear about what you’re doing and what your mission actually is. So, I think for me that’s that’s what a lot of the reason I think we got excited when some things happen in the marketplace, not excited those things happen, but excited that we have the opportunity to help be thought leaders, as you said, for the market and help our customers navigate their situations.

Heather Bennett  19:33

Yeah, that’s excellent. I mean, just like you said, clarity, mission, all of it. So, let’s move from mission to vision. What’s your vision for MedHQ? And then we’ll come back to discussing what happened with 424 and how that came about, but, but first, what, what are you looking forward in the future for MedHQ?

Tom Jacobs  19:51

Yeah, you know, I have to go backwards before I go forwards, but so I, you know, just the name, I mean, we did choose the name, even though we were only doing a. HR and accounting at the time we added in healthcare land, this makes sense, maybe to nobody else, but credentialing we added that along the way, but the mission was always, you know, be excellent back officers, providers, because, you know, my family had a healthcare background, has a healthcare background, and so you know, you know that doctors don’t like to have to do the administration, you know, they, and even in health systems, hospitals are complicated for organizations, very complex, you know, systems, and they’re bureaucratic for a reason, they have to handle so many contingencies and so many events that they need to be prepared to do that, especially acute care hospitals, but, but, but our vision was that we could be a part of the solution in terms of helping maintain it, reduce cost, let’s say, in the, in the healthcare space, and that’s that was the vision early on, maybe in our little way, you know, HR accounting for surgery centers, but it was always part of the vision that we would have, that we could have a larger role by delivering our service to more and more clients, and you know, you mentioned the part, you know, Newport and Mike Condron helping us find our, our capital partner, four to four capital, that was a major launching point going into the future in terms of really filling out all the services that we would offer, and at the time we did that, you know, we’re making a bet that that’s what the market wanted, and today I really think we’re seeing great feedback from from the market that yes, this is what they want, and they want high, great quality, scalable, scaled, let’s say solutions that they can rely upon to do administrative work and operational work, so that they can have great deliver great care to patients in their local markets. You know, healthcare is a local thing, you know, it’s a, it’s a geographically based local phenomenon, but efficient partners like us can help them scale, even be in the region, or maybe even national, but also we have the size and scale to be very efficient about what we do and how we do it, and they can tap into just a plethora of resources and experts and technologies that they wouldn’t be able to do on their own in the complex environment that healthcare operates in.

Heather Bennett  22:53

Yeah, and I don’t anticipate that, and I’m sure from your perspective that that complication will end anytime soon. So this is very important service and perspective and guidance in terms of technology and services provided. So let’s go back to four two. So you’re running MedHQ, things are going great, you’re growing, you’re scaling, you’re hiring really terrific people, you’re serving your clients. What was the trigger point for deciding to that to reach out for capital?

Tom Jacobs  23:26

Yeah, great question. So kind of before that, some of our clients, they were going through some of their own exit strategies, let’s say, and and that was important, and we needed to be there for them as they did that, and wherever that landed, we at least wanted to help them in their, in their process of what they once they had taken that step, and you know, I was to the point in my gray-haired career where you know I was starting to look at my own, you know, opportunity, my family situation, grandkids, now all those things that you, you know, when you start this, you think that’ll never get here, but now it’s here, and you start thinking about, okay, we’d love to have MedHQ continue on in some form or fashion. How do we go to the market and figure that out? I’ll say prior to that I had sat, I had made it a practice to sort of at least once or twice a year go to some sort of M and A event. I mean, I’ve been doing the, I’ve been doing that for since the mid 2000s probably, or even before, maybe, but just, you know, kind of slowly educating myself on, and what the, what the M and A market is all about, what the, what is a PE firm, what is a VC, you know, what are strategic buyers? I didn’t, I can’t say that I really understood that, even when Mike and I started working together and didn’t know it as well as I do now, that is, but but it. I felt important to really prepare myself for something in the future, because I knew someday I’d get there. So, when it, when I got to that point, I had actually been through a couple rounds with with potential buyers, and just never felt we were getting the value that that we that we deserved, and so we turned down a number of opportunities along the way, but I think with, with Mike and engaging, engaging Mike, and Joe Dennis, by the way, was I was his partner on this project, I think they did an excellent job of really helping me believe that we could go to, you know, we didn’t do a full process, but we had a very professional approach to how we went to the market, and we had about, you know, six or 10 potential buyers or partners that we knew would be interested, and so they really helped me professionalize the approach, excuse me, of how we would go to market, how we would educate the potential partners in what we were all about, what we think our opportunity is all about, and, and, and Mike and Joe just did a great job of, you know, number one, preparing me and MedHQ for that, helping us to believe that yes, we, we had these opportunities, and we could, we could achieve a great result. And then, you know, they helped me through the, the selection process, you know, indication of interest, LOI, all those steps, and really helped me, you know, narrow down, you know, what were the best opportunities, and then ultimately, you know, with our, with our now current partner, so great experience working with Joe, or with, with Mike, and Joe, and Newport. I can’t say I say enough, sing enough praise for what, how that worked out for us, so

Heather Bennett  27:02

I love hearing that. So I will go back to one of the points you made during this, is the education, and there’s something really important about business owners taking the time to educate themselves way ahead of time, and I love hearing that you were doing that a long time before considering selling, and there’s so many more ways to do that now. You know, there’s courses, there’s I know our firm puts on at least once a year education platform event specifically for helping these business owners understand how the process works, understanding what questions to ask, so definitely, that is thanks, Tom, that is great advice for business owners to understand. It’s never, it’s not too early to start learning about what that process, even if you don’t think you’re selling, because you just don’t know, and there’s a lot to learn. So, speaking of a lot to learn, due diligence is a very complicated event and process. What surprised you about the due diligence process that you, even though you had done a lot of research, you didn’t expect?

Tom Jacobs  28:16

Yeah, you know, I actually think it. I’m sure it depends upon the buyer to a degree, maybe not, so that’s probably not as important as the size of business you are at the time, you know, think that probably drives very more variation in how the diligence process goes, how long it takes, so all those things, then then maybe the buyers, because now I see that a lot of buyers might have a similar approach, but I think what surprised me is it was manageable. I thought it was just going to be horrendous. It wasn’t horrendous. Now, maybe Mike Condor and had some conversations with the with our now partner in there, he’s chairman of our board now, but that I, you know, was not a part of, and so I think he did a great job of kind of relationship wise, you know, bringing both me online and Kyle, our chairman online, and kind of bringing us together and make sure we’re on the same page. Getting back to your question, I guess, what were some, some surprises? You know, it was a reasonable amount of diligence. I think I was surprised by that. I felt like I felt like they’re going to look at things that just were totally unnecessary. No, they didn’t. They’re very good at what they needed. They knew just what they wanted to look at. They knew just what areas they should look at, and it just made sense to me. That was, I guess, the surprise is how, how much sense it made to me what they’re, what they’re getting into.

Heather Bennett  29:55

And that’s that’s not always the case. I’ve heard. And every story possible about the exit process, and it sounds like yours was a very good situation. Yeah,

Tom Jacobs  30:06

I’m so happy with where we landed. So, 424 Capital is great,

Heather Bennett  30:10

and the fact that you’re still there, and you’re still a very valued strategic advisor to the company, that that says something about the process, and to your new partner, four to four, so that’s that’s really terrific. I do have one last question. Our time has gone so quickly, but this has been great before I ask, and I want to point people to your website at MedHQ.com or course to reach out to you on LinkedIn. So last question, What is one hard lesson that you learned while founding growing and, and, and really scaling MedHQ that you wish to share so that other CEOs who come after you could avoid maybe those hard lessons or that that difficult moment?

Tom Jacobs  31:00

Well, that’s such a big question. I guess maybe I’ll go here. Actually, in a lot of ways, wish I could have figured out a way to bring more partners and maybe a capital partner in earlier. Honestly, I think we didn’t grow as fast as we could have early on, um you know, but maybe the better way to say it, honestly, if I’m being self-reflective, is you know working at myself was such an important thing, because I, it was me who was the, who was the bottleneck, I, my capability, let’s say, my emotional intelligence, or knowledge or trust, or all those things you know. So, again, early on, if a person wants to be an entrepreneur, start at age 810, 12, you know, really work at, you know, yourself, and being somebody people want to work with, being a leader, being, you know, capable, and all those emotional intelligence areas, there is really important. So, my lesson learned for myself is, you know, work hard to be better at that earlier on.

Heather Bennett  32:17

I like that, that’s great advice. Okay, so, so we’ll continue the question, just a bit. One book, podcast, or show that you would recommend to help business owners become that better leader.

Tom Jacobs  32:32

Well, boy, another great question. I mean, I’m, I’m deep in my faith, I guess that’s the book I would, I’d recommend, and you can guess which one that is, but, but from a business book stand up point of view, I am a huge Patrick Lencioni fan. He’s an HR-oriented guy. I’ll just say Good to Great is the book that stands out to me, as you know, Doug Collins is being just a lot of relevant information in that book.

Heather Bennett  33:02

Big fan as well, so those are excellent books, and we’ll make sure that they’re in the show notes as well for our audience. I’ve been talking with Tom Jacobs, founder of MedHQ. Tom, thank you so much for joining me and for sharing your experience.

Tom Jacobs  33:19

Thank you so much, Heather. I’ve really enjoyed it. Thank you.

Heather Bennett  33:23

As mentioned earlier, while interviewing Tom Jacobs of MedHQ, he worked with Mike Condron of Newport and a few other of our Newport partners during the transaction. Mike Condron is a managing director and has been a partner with Newport for over 14 years. He has a highly accomplished career in law, C-suite management, and entrepreneurship. He uses his experience in all three to help mail market clients de-risk and navigate the M and A process successfully. Mike, welcome to the show.

Michael Condron  33:52

Oh, hi Heather. Thank you. Thanks. Great to be on.

Heather Bennett  33:55

So, Mike, let’s get right to it. How did you meet Tom and start working with MedHQ.

Michael Condron  34:02

Everyone will always say, hey, they have an interesting story, but this really is something that was unique. One of our fellow partners here in Chicago, Joe Dennis, is really a pioneer of digital connections and digital lead gen, as we call it. And after we formed Newport, we realized we all have great and extensive networks. I don’t always have a good understanding to communicate to people what it is I do, and Joe did a great job identifying and reaching out to folks, business leaders specifically in healthcare, that might have a need, have an interest after they’ve had the growth component that we’re now ready to explore and exit. Tom responded to Joe, and they had a few sessions virtually on Zoom, and I will never forget getting a call from Joe, saying, “I think I have somebody for you that we might want to talk with, like right away. I was in Tennessee at a board meeting, and within a few days, Joe and I were back in Chicago. We had a lunch with Tom, and that digital connection reminded Tom and I that we knew one another. We actually had lived in the same community up in Lake Geneva, and years earlier he had had a boat that had become loose, and I was the volunteer board member of the community to in charge of buoys that year, so I got this call that there was a random boat that had come lost from its mooring on its buoy, and me and one of my neighbors were able to go secure the boat and tie it down, and as Tom and I had lunch, she said, “Oh, I remember you, we know each other. Then we went back to realize, as Joe, Tom, and I talked about what Tom really wanted to accomplish with MedHQ, the origin story for MedHQ, Tom, I was able to listen in, talked about his wife, Julie, and their staffing agency. I had early in my career been a lawyer for her for that staffing agency and a few others, and so, as Tom and I connected, we realized we had a shared value system, and that really launched about a five session period where we started to talk with Tom about what he really wanted to accomplish and what he had done up till now with MedHQ.

Heather Bennett  36:17

That’s awesome. It is really it’s who you meet, who you know, and who needs help. I love that. That focus,

Michael Condron  36:25

the boat, the boat becomes a metaphor later for having an unmoored boat, because sometimes at Newport, our origin, our origin story has has some guidance in, you know, being able to sometimes help guide our clients, and in this case, similarly, MedHQ had grown, it was kind of floating, having been a founder, and really needed a new secured approach for how to secure growth, and Tom was ready, as a founder, you know, to have a capital partner, and that’s what we learned in our sessions, in our working sessions.

Heather Bennett  36:58

Yeah, he had the best things to say about how that process, so let’s talk about the process. What were the triggers in your discussions with him that said, okay, here’s what you know, this you are ready for exit or you’re ready to start getting ready for exit.

Michael Condron  37:16

Yeah, this is a great thing, and again, listening to Tom, this was helpful because one of the things that a founder has confusion over is they know their business, they know some challenges, like Tom explained earlier, with existing clients who were thinking of going through their own process, caused Tom to look at strategics, different competitors that might come to him, and while they were offering a certain number and a range of valuation. I think Tom felt he could do better, but it allowed Joe and I, in particular, and we began a great team, by the way. Joe is not only a pioneer in digital, he also had a background in accounting, and I have a background in HR, PEO, and, and, and healthcare. So, together with Tom, we were able to craft a strategy for him to say, okay, if you do want a part, here’s what it might look like with a strategic, and if, if you’re ready to exit as an operator, that might be a good choice. However, you know, if you might have four or five years of fuel in the tank to stay in and help grow your business, boy, that opens up an opportunity in late-stage venture and early private equity, to which Tom, as he said on this podcast, had begun to learn a little bit about those options, but wasn’t quite sure whether that was going to be a fit. I have been an operating executive with a number of private equity firms, I’ve been a general partner, general and limited partner as investors in private equity, so that was another opportunity for he and I to have a session of not only what that might look like, but how do we target the right potential buyer, and in this case, and that partner, four to four capital rose to the top, there were about three or four on that side, there were three or four strategics, and we ran a limited process, and that process was something not only new to Newport, but in our transaction phase was one of this was one of the nascent deals, so we made sure not only that Joe and I were doing it correctly, but we brought in a tenured expert, Fred Fink, who’s part of our transaction group, to make sure and oversee that we were doing things right, because this transaction was small enough that an investment banker might not necessarily be interested, but it was incredibly important to Tom, and it was incredibly important to us to make sure that he had a plan and a strategy for the next five years. We worked really hard. I also heard Tom talk about diligence, and we can talk about that too, because the reason he had such a good experience was the hard work that we did on the front end in the other five sessions before we even went to market.

Heather Bennett  39:53

That’s such a good point, you know, not only to do the pre work ahead of time, but also to really listen to. What the client’s goals are, and, and helping them explore. There’s so many options at that point when you’re getting ready to exit. It’s, it’s, it’s often, I think, hard to see all of those options at one time, especially if this is the first time you’ve ever exited a business,

Michael Condron  40:17

right? And founders, by the way, just like they want to run their business quickly, they’d like to do a transaction quickly, and I will share with you. We moved quickly, we moved with more alacrity than I expected. Joe, Joe, Dennis, and Tom, and I talked about weeks, not months, but what we were very pleased with is because they had, you know, at MedHQ already some very good blocking and tackling on their financials, they were a little bit ahead of some of our others in terms of sometimes we’ll run a process, even for a year, to make sure that we act as if we’re the capital partner. Here’s what you’re going to share, here’s what they’re going to ask for, here’s what your succession plan needs to look like. Tom had done a lot of that planning and work, but what I liked is he said, you know, in his business they bring bring clarity into the PEO and surgical center space. One Newport could bring that same clarity to him in the transaction, and two, I knew in surgical centers with my healthcare background that this was a hot space that many of my early stage private equity relationships would have an interest in, and that’s what happened for 424 made MedHQ the base of its business to then acquire things on, that’s a big deal as well. And Tom and I talked about what that meant, which meant we’re going to yield higher value for him, and the best part is you have your cake and eat it too, because you have that second bite of the apple that 30% Tom still hasn’t realized may actually eclipse what he was able to achieve in the first part of the transaction,

Heather Bennett  41:50

yeah, definitely good to think about in multiple stages as opposed to thinking it’s a one-time transaction, especially if you’re willing to stay on as an operating partner, right, What do you think business owners need to be thinking about, you know, given, given everything you’ve just said, like what should they be concerned about before even going down this path?

Michael Condron  42:13

So, I would say two things: it doesn’t have to be us, but get a, get a, get an advisor, get a partner, get a trusted advisor who complements the areas that you may not have. You may have expertise in what you do, but I’m working with two or three folks right now that really know their business, but they’re hearing about private equity, and quite often, often they’re not hearing positive elements, and they’re hearing about strategic issues, and they’re worried about what’s going to happen with their employees, so I think the first thing, not only in your internal planning with the books you read, and, like Tom, I read Good to Great, we have shared values, I, you know, Peter Drucker, The Modern Management and Effective Executive, are the things I listen to, so I love reading, but I would recommend reaching out to somebody that you can have as a trusted advisor to take you through those machinations, because quite frankly, MedHQ is ready, so by the time they went into the process, we actually were doing diligence on our acquirer more as much as they were doing on us, it’s very rare, but we actually took trips out to Boston, so that Tom could meet, and we could understand more about the investors, and, and, and, you know, what we were could learn about 424 so that we created the right fit. Founder doing that work ahead of time, it’s not easy to just do that on your own. If you can have a group that helps you with that, it may be an executive you have in it, may be a group like, like Newport, really does help, and you know, in our case, we actually saved MedHQ an investment banking fee, we probably charged about half of what an investment banker would, so that would be my recommendation, is not only do your prep, but be ready to share with your trusted advisor some things you’re worried about, so you can play out those mashing, have those machinations come up now rather than happening in diligence. That’s why you’re going to have a more pleasant diligence process.

Heather Bennett  44:17

So, in the process of the transaction, transaction, did anything not go as planned, or do you have any regrets about how it went?

Michael Condron  44:26

Nothing ever goes as planned, even though we, this was one of our favorite transactions, because it was something new we were trying as advisors. As advisors, sometimes you just turn it over to over the transom to the bankers, so one thing that was a surprise was that we were able to do the work and be ready, so when an ERISA issue arose, like it did, it had this was something that everyone agreed had to close at the end of the year, I’m gonna forget which year it was, but I can remember this, I can remember sitting there. Next to my Christmas tree on Christmas Eve with now the chairman of 424 talking about whether we were going to do this deal or not six days away from close, and some of it had to do with simple issues, benefit issues that are totally things that you’ll, you won’t foresee, so I think being ready and flexible with our founder, prepping them for what it might look like. That’s when our leader on the transaction side, Fred Fink, became my advisor. And so one of the things we do well at Newport is we try to taste our own medicine, which is making sure we have checks and balances, and that we’re working through issues, and so I think the surprise, one, the surprise was we all, we all closed as we said we would before the end of the year. Two, there was a point where I thought I had to fly to St. Louis to meet with an ERISA lawyer who was ready to check out for the rest of the year, so being ready, you know, to go that extra mile for our clients was a little bit of a surprise, but three continuing the relationship, I think. If I have a regret, one of the things I offered, but should have pushed harder, is any small fee I have as an entrepreneur, I like to roll into the future. So I’ve stayed in touch with MedHQ with 424 and you know, turns out a few years later they needed a CFO, and I was able to make that happen for them as well, and bring a really close friend, since I’ve known since I was 13, come in and help them with Blue Cross and some other connections, so I think those are some of the things you never can forecast, what you can plan for something will go sideways, so always you know, set some time aside, set some resources aside, even if it’s Christmas Eve at 11am just turn on your tree, and you know, have those discussions, and you know, it ended up being a great, a great holiday season, because we were able to pull off the transaction.

Heather Bennett  46:58

That’s a really good answer. I have one last question, but before I ask, it is there any, anything else you wanted to add about the uniqueness of this transaction and advice for owners thinking about the process?

Michael Condron  47:12

You, Tom said it, I’m going to take his words. I was so proud of what he said, which was, you know, he said some things like, ‘chee, think about this sooner, maybe I should have brought on a capital partner sooner. We are very polite at Newport, but we’re also very direct, and it’s amazing how many times the founder sees, oh my gosh, I’m in my own way of my growth, and I’m the barrier to potentially the exit that I say I want on paper, but I really don’t. I had another client wants to tell me, you know, I’d like to go with this private equity firm, but I don’t want them to tell me when I have to get on a boat and be with these other portfolio companies, you know, in July, because that’s when I take the month off, and I thought, oh, this is the right fit, so I think, you know, engaging and really going through the options is critical, and I just can’t, you know, emphasize that enough. It’s not all going to be, you can’t prepare for everything, but you can run through that diligence process with an advisor sooner rather than later, and engage us. We’re always willing at Newport, as you know, Heather, to have a discussion, and as Tom, Tom said it best, our job is to bring clarity to the process that you seek and try to help you with the options that are in front of,

Heather Bennett  48:30

okay? So, final question, How do you advise business owners, and not necessarily Tom, but the business owners you’ve worked with, on what happens after the transaction, because he had a unique situation of work staying on for a bit of time, and, and what do you advise for during that time period?

Michael Condron  48:50

Okay, first of all, that’s a great question, and I loved your tagline of hustle meets luck, because the very first session I had with Tom about private equity was I need you to be ready to commit to two to three and up to five years to run this business. As additional businesses come on, you are as the once you’re on the other side of the transaction, you are the subject matter expert. That capital partner has placed a bet on you that that you are going to help them move forward. That doesn’t mean necessarily that they don’t want to professionalize the management team, so you might lose some things operationally that you once held on to, for example, like how you manage your pocketbook, things like, you know, the miles that you used to get on your credit card that you would use to take your family on a cruise because you ran so much of your company expenses on that on that Amex card, those things will change, but I think on the other side of that transaction I stay available as advisor, and you know even as we’re thinking about that next bite of the apple for Tom, let’s do some planning, and luckily for founders, sometimes that’s helping you with a. Family office that’s helping you with, you know, what you are, what are you going to do next? So, as you take some things off, most of us that are entrepreneurs want to keep going, so you, there’s no, I always retirement is probably a vestige from, you know, many decades ago, so we start to plan and think about what’s that going to be like once you have fewer duties, and what does that mean? I could be enjoying grandchildren, I could be starting a new business, running a family office, or doing a variety of things.

Heather Bennett  50:33

Excellent, excellent. I’ve been talking with Mike Condron of Newport about his experience working with Tom Jacobs and MedHQ, Mike. Thank you so much for sharing your perspective. I appreciate it.

Michael Condron  50:45

Thanks, Heather. Great job.

Outro 50:53

Thank you for listening to the Growth + Exit Podcast, sponsored by Newport, a unique national business advisory firm. If you enjoy this show, be sure to share, like, and subscribe for future episodes.