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- [00:01]
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Scott Becker
This is Scott Becker with the Becker Business and the Becker Private Equity Podcast. Today's discussion is the deal market, business services and healthcare. This is a session that featured three great leaders. It featured Jeremy Jacobowitz, Grange Park Partners. Jeremy does this incredible job of helping run quarterback or quarterback or concierge for private equity driven deals both on the buy side and the sell side. Remarkable service and leader. Second is Tom Malin, founder of Regent Surgical Health, now the CEO of Perpetuate Capital. Brilliant, brilliant leader.
- [01:10]
Jeremy Jacobowitz
Brilliant career.
- [01:12]
Scott Becker
Harvard Business School. Tremendous, tremendous leader and thinker. And finally, third on this session, business services and healthcare. We have Bart Walker, one of the best healthcare mergers and acquisitions attorneys in the country. Just a brilliant lawyer and business leader. I want to thank all three of you for joining us and I hope you enjoy listening to this discussion about the deal market, business services and healthcare. Thank you for listening. Let me ask each of you to take one moment to introduce yourself. Jeremy, thank you so much for joining us. Take a moment and introduce yourself and tell the audience what you do.
- [01:48]
Jeremy Jacobowitz
Sure, will do. Thanks Scott for having us, for having us on. Excited to be here today. I'm Jeremy Jacobitz. I'm the founder of Range Park Partners. My firm provides M and A execution services so we'll support middle market businesses and investors that are going through a transaction process. We'll act as an outsourced deal team or investment team really for a business that's making an acquisition or for a business that's going through a sale process. We'll help recruit your advisors, we'll help run the due diligence process and just manage the day to day execution of a transaction process, start to finish.
- [02:18]
Scott Becker
Thank you so much. And Jeremy, just take a moment on how you got into that business. Such a needed piece of that business, particularly in the lower and middle market. Talk about how you got into that.
- [02:28]
Jeremy Jacobowitz
Sure. Happy to. So I've spent my whole career in the M and A space myself. So I started my career as an investment banker, then worked for A number of years at a private equity firm, I ended a family office doing private equity deals. And the one common theme that I saw and on all the deals that I did as a private equity investor was there are a lot of great businesses out there in the middle market and lower middle market in particular that are run by very talented entrepreneurs that know how to run a business really well. But when it comes time to doing anything transaction related, oftentimes these businesses just generally didn't have the capacity or the bandwidth internally to manage through the day to day of a process. It's really a full time job. When you think about either doing an acquisition or even going through a sale, it's really a full time job for somebody at the company to manage the day to day execution of that process. And oftentimes you saw that there was nobody kind of picking up that work. It oftentimes falls on the plate of the CFO or even partially the CEO or some other roles. And generally those folks have day jobs and they're busy day to day. And managing the full time role of a transaction process is a very significant strain on a business. So I made the decision to start a firm to kind of address that point. And ultimately we don't provide any investment banking service. This is always a question we can ask. But our role is really to act as a deal team for a company going through a transaction process. We help them with everything from recruiting the right advisors and a sell side deal. We'll help you pick the right investment banker and we'll kind of act as your deal team to help manage through the process. And the same thing on an acquisition context, if you're a business or an independent sponsor, or even a private equity portfolio company that wants to do an acquisition but needs a deal team to manage the entire underwriting process, work with all the third party advisors and just kind of help you through the diligence. We'll step in to do that and we kind of give institutional grade M and A execution to middle market businesses and lower middle market businesses that generally have never had an M and a resource internally.
- [04:13]
Scott Becker
Jeremy, thank you so much. And we will actually focus a lot of time with you in one of the questions here, the mistakes that founders sometimes make when preparing for a transaction, sometimes they're not mindful of all these services or things that are needed to get from point A to point B. Tom Malin Harvard Business School Commercial Real Estate to begin with, Founder of one of the nation's largest surgery center companies. Now leader of Perpetuate Capital Take a second, Tom, if you don't mind, and introduce yourself.
- [04:42]
Tom Malin
Thanks, Scott. I've had the pleasure of working with Scott since the mid 95, I think we met on two different surgery businesses as a counselor and as an advisor, as a marketer and as a board member. So I really appreciate the opportunity to be here with you and be on this panel. So I spent the last. Well, he spent from 2001 to 2016 founding and operating, putting together the team to manage ambulatory surgery centers with Regent Surgical Health. That company had grown dramatically. It had been very profitable for the founders, of which we had 12 of us who put the money in. We had no institutional capital. We got to 2016 and realized that we needed to do transaction. I had two partners who were over 70 and a partner who had passed away that owned 40% of the business. And so we looked at private equity, we looked at strategics, but the management team and I dug into what does an ESOP look like for a company like us. And we ended up after about, it was about nine months transitioning the company to an employee stock ownership plan. And what that is is a company is basically creating a trust for the benefit of the employees that does a leverage buyout of the business. And Scott was with us in the board discussions on that. And the company then operated for four and a half years as an esop. And we paid down substantial debt. The sellers were able to shield their gains by converting the proceeds into stocks and bonds of US Companies we sheltered didn't have to pay capital gains tax. And then the company became a qualified pension plan and didn't have to pay federal income tax. So it enabled us to accelerate the pay down of debt. And then we had an unsolicited offer to buy the company during COVID which looked at the management team and they all wanted to do it. And we did. And we had a very successful sale in 2021 with 13 of our employees becoming millionaires. And even the ladies who did billing and collection who had been with us for the entire time as an ESOP got 4 to $600,000 in their IRA accounts. It was truly life changing. After that, I decided that I wanted to help other business owners basically do a similar thing. And we identified the missing link as the middle piece of capital between the seller financing and the bank financing as being the missing piece. It was not a good option for us to work with MEZ Capital, so we needed a lower cost, more flexible capital structure. And that's how we created Perpetuate Capital. And that's what we do today.
- [07:58]
Scott Becker
It's fantastic. Bart, I'm going to ask you the first substantive question. Bart Walker, by background, is a partner, McGuire woods, helps to head up the health care practice, which is one of the largest in the country, does a lot of work at the mix of private equity and deals. I'm going to ask each of the three of you a different question. Then I'll ask each of you, Jeremy, Tom, Bart to feel free to comment on one of the other questions if you wanted to jump on that. Bart, I'll start with you. When, when you look at today business services, health care, where are you seeing the most interest right now? And you know, let's start with in health care, as you spend so much time there, where are you seeing a lot of excitement versus excitement starting to slow down.
- [08:40]
Bart Walker
Yeah. Thanks, Scott. And before I start, I'll just say hello to Tom. He was one of the first clients I think I ever had the privilege of working with when I started at McGuire. So have been following his career and I've learned a heck of a lot from him over the years just watching him and the growth of his companies and his success over the years. Some of the areas that I see today are not strictly physician services. I think there was a bit of a not a moving away, but a bit of a chilling on physician practice management where the old recipe of just kind of buy a big physician practice and then strap on a bunch of add ons to it and dollar cost, average the value of the platform and then exit to a bigger PE fund that formula. It doesn't work unless you actually kind of know what you're doing. And I think there are a lot of people that got into that that maybe didn't necessarily have the depth that they needed to make that kind of a business work. But what we're seeing is things like infusion, ASCs are still very, very popular, profitable specialty pharmacy, mobile imaging, and then beyond healthcare services, we're seeing people get more interested in things like pharma. It's the whole constellation of companies that provide services to big pharma, whether it's domestic manufacturing, supply chain, cold storage, sterile manufacturing, storage, fill finish. That whole set of companies is attracting an awful lot of interest and then not necessarily a niche or a specific industry or sub industry. But we are starting to see a lot more PE funds partnering with health systems in unique and interesting ways. And that could be across different treatment modalities, different types of providers also providing strategic business support to the health systems. And so you're Seeing a lot of this matchmaking happen behind the scenes where you've got a PE sponsor as well as a health system and kind of bringing the expertise of those two organizations together. We've been seeing an awful lot of that lately too.
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Scott Becker
Thank you very, very much. There's so much interest in the pharma sector, the pharma AI sector, the development sector, plus pharma services and distribution still too. Thank you. And probably less interest, at least some of the physicians practice areas. The orthopedic stays very hot. Some of them remain quite hot, even though there's some less of interest in some other areas. Jeremy, let me ask you the question of mistakes that founders make in preparing for a transaction that seems right up your wheelhouse and you end up solving a lot of those problems. Talk a little bit about some of the mistakes that you see founders make in preparing for a transaction and looking at the market.
- [11:25]
Jeremy Jacobowitz
Yeah, sure, happy to. So that's definitely something that comes up a lot. We tend to get involved with clients who want to sell a bit earlier on in the process. So our role kind of, like I mentioned, is really to get them prepped for the process, make them institutional process ready, and then ultimately help them recruit the right investment banker and then manage the diligence process. But a lot of the things that we'll see kind of early on, which is, you know, a big part of what we do to try to help them. Oftentimes business owners, like I said, run a fantastic business. But a lot of the business lives in their head, right? They don't have documented processes written down. They don't have necessarily their customer contracts properly recorded. Maybe some of their vendor agreements are kind of handshake deals. These things, you know, when you're running a business, you know, sometimes, you know, that ends up being fine. But when you're getting into a transaction process, any sophisticated or institutional buyer is going to uncover that, and that's going to be a, you know, often, more often than not, you know, a large discount to value will happen as a result. And so we try to get ahead of a lot of that and make sure that everything is kind of formalized, contracts are in place as need be, and the business is really kind of institutionalized from a process perspective. Some of the other things that I'll see and I'll talk a little bit, you know, more about on the advisor side besides just actually prepping your business. One of the biggest mistakes that I see sellers making is trying to go into a process without having done a sell side. QV I think doing a sell side QV is one of the most important things that you can do as a seller and as you're getting ready to go into a process because it really gives you visibility into what is your EBITDA and what are the adjustments that make up your ebitda. Oftentimes, sellers and successful entrepreneurs don't know how much cash they're taking out of their business at the end of the year. But to have a real understanding of what makes your business, you know, what is your actual adjusted ebitda. When you think about, you know, cash to accrual, cash to accrual conversions, you know, family add backs, you know, perform adjustments, all these things have really, really material impacts on value. And having very strong visibility into what those drivers are, what your EBITDA looks like from day one, it just puts you, puts you at a much better starting point because you've done the work to actually establish here is what we think our EBITDA is. Of course, buyers will come in and do their own QV to assess, you know, how, you know, what validity do we think your numbers have? But starting with an accounting firm, reputable QV firm that's actually done the work has put the stamp on your numbers very, very important when you're getting started with any process. And then I'd say as a broader point, having the wrong advisors is something that I see a lot of business owners also struggle with. So sometimes, you know, business owners will bring in a lawyer that maybe doesn't, you know, when they're getting ready to go to market, they'll bring in a lawyer that doesn't specialize in M and A, or they'll bring in an investment banker that doesn't really have expertise in their industry. These are also areas where a lot of decisions have to get made early on in the process. And these are areas that also could end up really hurting you down the line. You spend a lot of time with maybe an advisor that doesn't know your space so well, doesn't know the buyers, you know, that can mean you've left somebody on the table. If you have a lawyer or another set of advisors that don't really, you know, are not really M and A, you know, people are M and A. Advisors could also just make things more complicated. So those are always things I like to, you know, I like to tell my seller clients is, you know, make sure your business is prepped and obviously have the right set of advisors because that's how you extract the most value at the end of the day.
- [14:21]
Scott Becker
Thank you very, very much. And Tom, you've been through this process a number of times, both as a now esop investor, but also with years as an investor, but also as a, as a founder, as an operator. If you're advising a CEO today that's considering a sale, he or she in the next few years, what would you tell them? What do you tell a CEO to focus on in getting their business to be ready to be. To be investable?
- [14:51]
Tom Malin
As Jeremy said, advisors are critical. In the ESOP world, there's a larger number of advisors than the non esop world because you've got a trustee. You've got a trustee with his financial advisor. The company has a financial advisor. There's lawyers on both sides. The costs are exactly the same or maybe even less if it's done properly. But as the seller, you're doing this one time and you sit there and you feel like you're at a poker table and you don't know who the mark is because. And you feel like the mark because everybody around the table has done it many, many times and it's your first time. It's a very disconcerting feeling. The other thing I would say to, to a seller is once you get the right advisors around the table that you trust and are, are doing, you know, representing you as much as they can possibly represent you, do not take your eye off the ball of your business. One of the things that I think Jeremy can bring to the table to sellers is they, they don't.
- [16:01]
Bart Walker
Deeper conversation too.
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Scott Becker
You know, Michael, if we can get your. Michael, get you mooted. Thank you so much.
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Tom Malin
If, if the company is not hitting its numbers because everybody is focused on the sale, they're thinking about what sports car they're going to buy, they're thinking about the second home they're going to buy and they're not focused on the business. There is nothing that will kill a successful sale quicker than the company falling out of bed during the trans. During the transaction process.
- [16:33]
Scott Becker
Thank you. And Tom, you've done this great job of having clarity about what you think is the right direction. How do you balance that with advice from advisors? Because you're one that's very smart, very clear sometimes about. Here's the goals and you'll have advisors that are all over the board in terms of what they see out there. How do you balance your perspective as a founder CEO versus that of your advisors? When do you listen? When do you say thank you? And how do you attack your own course with all the different opinions out there.
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Tom Malin
Well, the most important thing is to align interests. Okay, we hired. I had a bad advisor starting our sales process. It was me. I was marketing our company to the industry that seemed to be the most logical buyers of our company. That was a failed effort. Then the next year we hired a great investment banker who knew our industry very well and we aligned interests. He was going to get paid a nice payday no matter what we did. If we went to a private equity, if we went to a strategic, or if we did an esop. I actually paid him his fee on money I was lending to the company as a seller, financing. And you have to have mutual interests. Otherwise an investment banker will just try to push you into the highest price, quickest deal that they can do so they can get off to the next client. And that is a bad position to be.
- [18:18]
Scott Becker
Let me ask you both this question. Bart, I'll start with you. 30 seconds each. And how do you evaluate investment bankers? You know, when, when you have a client looking at hiring an investment banker, and then Jeremy asks you the same question because this is right in your wheelhouse. And then Tom. And we've, we've seen this process multiple different times. It's just in a process where the company literally interviewed 10 different investment bankers, which I felt was overload. Overload. But, but Bart, how do you look at that when you're. Because the investment is such a critical component. And to Tom's point, whenever I, as a founder have done this myself without a banker, it's been a. It. It's been a big mistake.
- [18:49]
Bart Walker
But yeah, it's a good, good question. And I agree you don't interview 10. I think you probably pick two or three of the right ones. And before you even make that phone call, you get recommendations from your lawyers, your accountants, your other business advisors, folks in the industry, people on your board. I couldn't agree more with what Tom said. You really need somebody that knows your market and knows your sector, because that's really a big part of the value the bringing is. It's not just a generic M and A deal. It's specific to this industry. There are specific buyers that are interested in only certain assets with certain characteristics. And the quicker you can get to the right advisor, the quicker you can get to market and ensure a smooth process. That's my big advice, is get as much feedback as humanly possible. Ask for references. I'm always surprised how many people actually don't even talk to references. Like, who have you worked with? Who are the founders you represented? And then Give me the names of two that haven't worked out or deals you haven't closed and if they can't give you those, then you know, that may give you your answer.
- [19:54]
Scott Becker
Love that. Jeremy, this is writing Wheelhouse. How do you advise people about interviewing investment bankers? Think about who they should work with, accountants, investment bankers, etc.
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Jeremy Jacobowitz
Yeah, sure. So I would echo a lot of what Bart just said. I think it's, you know, making sure that you're talking to people that really know your industry really well. You know, especially in the lower middle market, a lot of different bankers or brokers could look the same. But really having somebody who really knows your industry very well, knows the buyers that are interested in your type of business and knows really frankly, you know, what are the structures that are market today and you know, what's the best and most likely outcome for your business. I think everything that Bar said is a lot of things that we look at. What's your expertise? How many deals have you done? What's your buyer network look like? One of the things that we also spend time is just, you know, frankly, is there a cultural fit between our client and the banker? You know, at the end of the day the banker is going to be a trusted advisor for, you know, it could be a six to eight month process. And making sure that there's a cultural fit and alignment between the client, the seller and the bank are also very important. You're going to be working together hand in hand, you're going to be presenting the business, we're going to be talking to buyers, making sure that everybody's on the same page. And part of how we look for that is every time whenever I introduce my clients to bankers, it's always every banker is going to be able to tell you this is our experience in the space, these are the deals that we've done. And a lot of that is obviously, like Bart had said, super relevant. But we look for this smaller, more some of the undertones. Where do the understanding the nuances of the business that are really important to the client. Right. It's easy to just say, hey, you're in this industry. Buyers like this aspect and they like this type of customer base and they like this type of end market, you know, exposure. But hearing from a banker that they really understand the client's business in a very intimate and nuanced way, the way that, which, which kind of expresses how the client really feels about their business nine times out of 10, you know, and ends up creating a really strong cultural fit and alignment between them, which makes for, you know, a good partnership throughout the process.
- [21:40]
Scott Becker
Tom, let me ask you this question as a follow up. When you look at investing now through Perpetuate Capital, what drives you away? Give me a sense, you know, a quick sense of what leads you to look at a deal and say, we're not doing that deal. Bad numbers, bad, bad CEO, bad leadership, market challenges. What leads you to say, not for us.
- [22:09]
Tom Malin
Well, as a fund where we might be investing in a company, we're doing a leverage buyout. So the company has to have some stable cash flow. It's got to have some long term contracts. It's got to have the typical things you look for in a private equity deal. Good management team, that type of thing. The thing that scares us more than anything, me personally more than anything, is someone who doesn't know what they don't know. There's a family involved, there's family dynamics that are bad. We walked away from a really good company in the Bay Area that in an industry we really liked, that had all the characteristics that we wanted, but the dad and the two sons couldn't get along and couldn't agree and we finally just left.
- [23:04]
Scott Becker
Let me ask you a question on that. If you were ever working with a founder who had eight children or more, would you find that to be an impossible situation?
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Tom Malin
No, absolutely not. Unless all eight children worked in the business and they hated each other and the parents pit them off against each other their entire lives and they can't get along. You know, that's a question, Scott.
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Scott Becker
I mean, the question is, I mean, Bart is in that situation with I think, eight children currently. But they're not all in the family business nor pitted against each other, are they?
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Bart Walker
Not yet. Most days not.
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Scott Becker
So they'd still be a candidate. Good. But okay.
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Tom Malin
I had three children. I had three children and none of them wanted to be in the surgery business that I started today. One of them works for Medtronic and the other works for Denver Children's Hospital. So two of the three are in health care anyway.
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Scott Becker
So the apple didn't fall that far from the tree. Is is fantastic. Jeremy. Best thing you've seen a founder do or CEO do in bringing a company to market. Give us an example of someone who's really hit this right, and done it how it should be done. And you don't have to give a name, but someone that you've worked with. You said like they really had it, they really knew what they were doing.
- [24:28]
Jeremy Jacobowitz
Sure. Yeah. I think if somebody they're working right now just really strong command of their numbers, you know, and their data, right. So if we're talking to bankers or even prospective buyers, once they're in the diligence and they're saying, yeah, we have our end market exposure is X or our customer base is, you know, our customer channels are Y, there's data immediately to back it up. So it's never just like this is our feeling, this is our thought. Ultimately, I think what buyers really want to see, especially in today's environment, is the ability to underwrite, you know, the ability to credibly underwrite their base case and their assumptions with, with the data to back it up. So it's very easy for a seller to say, hey, I know in my head that this is what the business has been doing over the past several years. But being able to show that in data translates to a very, very smooth underwriting process for a buyer who's then able to really understand the business in a much better perspective, on a much more deep level and be able to underwrite and ultimately ideally ascribe a higher value to us. I think having a really strong command of your data and your financials, super important. I think also some of the best sellers that I've seen are the ones who know what do the buyers actually care about. Right. When you think about what levers actually create value in your business from a buyer, especially an institutional buyer perspective, you know, I've seen business owners that spend a lot of time on certain initiatives that maybe are helpful, you know, you know, for, you know, for a short time period or at some, you know, low hanging level. But ultimately having an understanding of how institutional and particularly private equity buyers operate and what, what they're interested in, having an understanding of that and kind of operating your business in that way in advance and in the few years in advance of a sale is a really easy way to increase value because you can spend that time that on the high value, on the high value levers. It really will give a buyer a lot of conviction and ultimately again give you the highest value.
- [26:11]
Scott Becker
But I love that point about sellers, founders, CEOs that really know their business well inside it out, know what the real issues are. I also love your point you said earlier, so many founders, mid sized companies live with so much of what their systems are in their head versus on paper and really put to a way that can become systematic, institutional. And I love that point you made there as well. Well, Bart, when you see sellers, founders, CEOs doing a great job, working through a process, I've seen you do it side by side with you a ton of times with great bankers, with some people that you work with regularly. And I know you've developed these great long term relationships with, with people because you show up every day in a really professional way. But talk for a moment about what you see companies doing well when they're getting from point to point, point A to point B in a process and then we'll wrap up this section.
- [27:02]
Bart Walker
Number one is what Tom said earlier. You can't take your eye off the ball. That is absolutely number one. And number two on the list, I think a close third is know thyself, do a little bit of introspection, do a little bit of self diligence in preparation for the process. If there are skeletons in the closet, you want to know about it before this, before the buyer does. The worst thing that can happen is you're going through diligence and the buyer comes up with something, whether it's a legal or financial or tax problem that can derail a deal if not cost you real dollars in the form of an escrow or a specific indemnity related to whatever the problem is. So a little bit of money and time spent up front being very intentional around what are our weaknesses, what are our problems, if any, and doing a little bit of cleanup on the front end can really smooth the process.
- [27:51]
Scott Becker
Thank you. I want to thank all three of you. It's a pleasure to visit with each of you. It makes my day. It's really a pleasure. Thank you for listening to the Becker Business and the Becker Private Equity Business Leadership Summit. Again, thank you to each of our sponsors. McGuire woods, perpetuate capital, Thinkspan Priority Search Management, Range Park Partners, Fair and Warner and Elevate Talent Advisors. Thank you very much.
- [28:22]
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