Here is my story…

My business, The Medical Management Institute (MMI) started with $500 and a one-year lease.   Over several years that big chance and $500 turned into a company with over 250,000 clients doing business in all 50 states with gross revenues in excess of $15 million. We grew from a 600 sq ft office to 16,000 sq ft.

Once we broke through $10 million is gross revenues we were contacted weekly from many potential buyers and M&A advisers.  We were never really interested, so most of the calls were a quick “not-interested” and I went along with my daily activities…as I look back this was a BIG MISTAKE and it could have cost me millions of dollars.  Remember this because I will come back later.

MMI continued to grow over the next few years and one day I received an e-mail and I decided to respond.  Here is the e-mail that ultimately changed my life…

Mr. Keene,

Please pardon the informality of this e-mail as I have been unsuccessful reaching you by telephone.  My name is Richard Mead and I have been contacted by Reed-Elisiver and they are interested in a possible acquisition of The Medical Management Institute. 

Please let me know a good time to contact you and I will provide you with the details.

My Best,

 

Richard Mead

Managing Director

JEGI

 

A light went off and I decided to figure out who is Reed Elsevier.  My first discovery is that we actually did business with them and they had purchased many of our in house publications.  Then I found out they are a public company with an $8 billion dollar market cap!!!  Holy Cow!!! They want to buy my company!!! I need to find out more…so I called Richard and he provided me with more details including preliminary information they would like to review.

For the next 5 days I spent my entire work-day gathering all the data they requested and more…I really wanted to make a great impression.  The end result was 5 boxes stuffed with everything they would ever want to know about The Medical Management Institute.  We shipped it out on a Thursday, priority next day air, morning delivery…must of cost over $300 just to get them the information.  But in my mind $300 well spent…after all a multi-billion dollar company is interested in buying my company.

The next few days were filled with anxiety and excitement as I waited for feedback and most importantly, how much were they planning to give me for my company.   Tuesday morning I received an e-mail from my contact at Reed Elsevier confirming they had received my information.  They were a little overwhelmed with every thing that I sent since they only requested some basic financial data and they would be in-touch if they had any questions.   In my mind I’m saying, sorry to overwhelm you but I want you to see what great products and services we provide.

A few more days go by and I receive an e-mail from Richard Mead with the subject line Reed Elsevier…this is it… an offer to by my business…I take a deep breath and open the e-mail…

David,

My contact at Reed-Elsevier has reviewed ALL of the information you provided and they have decided that The Medical Management Institute is to small for them to consider moving forward with an acquisition. 

We thank you for your time.

My Best,

 

Richard Mead

Managing Director

JEGI

Too small?   We are making over $1 million a month in revenues and a leader in our industry….what gives?

So, I call Richard to get some answers.  He let me know they are looking for a company with gross revenues from $50 to $100 million.  What a “deflating” experience, which I did not want to go through again anytime soon.

A couple of years later and it seems we have grown MMI to its limit.  I am getting a little burned out and frustrated at our lack of growth.  We just lacked ample cash reserves for growth and I did not want to take on any debt.

One morning, I receive a call from Richard and he has another interested party, HC PRO who would like to learn more about MMI and wants to know if I have an interest.  My first question this time is “Do we meet the revenue model they are looking for?” And the answer is a “yes”.  We get a packet together for them (much smaller than the one for Reed Elsevier) and send it up.   A few days later they request an onsite visit, which we agree too.

Having gone through this once before I am not getting my hopes up but still have anxiety about the visit and what to tell my employees.  I decide to tell them we have some “investment bankers” who have clients interested in investing in MMI.  Everyone is excited, as it will provide capital for growth, which we needed.

HC Pro is based out of the Metro Boston area so they fly in for the day and we bring in lunch (another $300 investment).  They arrive in style, as I look out my office window, I notice a super stretch limo pull up with the entire HC Pro Management Team.  I’m impressed…they have invested some time and money to come see our operation.  The meeting goes well and they let us know they will be back in touch once they return to Boston.

While I wait for their feed back I come up with an idea to reach out to some of the M & A advisers who had contacted me in the past and let them know we have someone that is interested in acquiring our business and if they have any clients looking for something in our industry to let me know.

Wow!!! Within 20 minutes of sending out the request I am on the phone with Baran Rosen of Whitestone Communications, a Merger and Acquisition Advisory firm, and he has a client who is interested.  He requests some preliminary information, which I gather and send to him.  I figured I could create more demand…and it paid off.

The next day I speak to Baran’s client on the phone and he is very interested and would like to present a Letter of Intent (LOI).  I tell him great and also let him know HC Pro is planning to make an offer as well.  Two days later I have two LOI’s one is an Asset Deal for 8.5 million (form HC-Pro) and the other is a Stock Deal (from Baran’s client) for $10.5 million.

I go for the larger deal with better tax consequences and we are on to the next step of due diligence.  Oh, I almost forgot to mention…In our LOI we agreed to a mutual exclusivity period of 60 days…remember this, as I will explain how this helped me later.

We receive the due diligence request and it is quite extensive and takes me over three weeks to get all the data together.  During due diligence it is brought to our attention that the buyer has yet to secure financing and is still in the process.  Meanwhile we have busted our butts and still wish to move forward but we decide to stop the due diligence process until financing is secured.  It takes him almost a month but he finally secures Mezzanine financing from VSS (Veronus Suhler Stevenson)  and everything is back on track.

One day, following the restart of due diligence I receive a call from another M & A Adviser representing The Coding Institute who is an interested buyer and I inform him that we are under an exclusivity period and cannot entertain any other offers.  He asked when it expires and I pull up the document and notice that the exclusivity period expired the PREVIOUS DAY!  The adviser informs me that based on that I am under no legal obligation to honor the exclusivity and that I should at least take a call with his client.  I did not really feel good about this as I had forged a good working relationship with the buyer we were working with however, the Adviser did a good job of convincing me it would be worth my while.  Needless to say, I provided the Adviser with some financials and agreed to a phone conversation with his client.

Our phone conversation went well and I shared some of the details about the “bumps in the road” we had on our current deal as it related to financing the deal…and during our call he conferenced in his banker at Merrill Lynch to confirm the monies were available for him to enter and fund a transaction.  The call ended and he let me know he would have an LOI to me by the end of the day.   Now I have put myself in a pickle…what do I tell my current buyer who has invested considerable time and money into the deal?  I decide to wait and see the LOI that the second buyer is putting together.

As promised, by the end of the day I received the LOI.  The second buyer is offering $12.5 million stock deal…that is an extra $2 million more than my current deal and $4 million more than the first offer from HC PRO.

The next thing I had to do was to notify the buyer we were currently working with and let him know we had another offer and that his exclusivity had expired.  Needless to say he was not happy and  in an effort to smooth this out I let him know that if he could match the price we would move forward with his deal.  Long story short he agreed and we continued to move forward at the $12.5 million price!

You may not believe this but two days before closing I received yet one more call from an interested company, Ingenix (now Optum), a wholly owned subsidiary of UnitedHealth and the former employer of my current buyer.  Over the phone they offered $15 million and delivered an LOI within an hour of my call…the current buyer never updated his exclusivity period and we had yet to execute the Purchase Agreement so we were well within our rights to accept the offer.

Another call to our buyer, who as you can imagine is livid, but knows the other folks are for real so he request I give him till the end of the day to determine if he can increase his amount for the deal.  This was a long day for me as I did not want to go through this process again as it was very disruptive to the day-to-day activities of the business…but for an additional $2.5 million it would be worth it!

My phone rings and it is my buyer and he indicates he can get the $15 million but would require some changes to the deal structure, which we agreed too.  Two days later we closed and the transfer of ownership took place.

It was a bittersweet day filled with excitement as I received the wire transfer and saw my brokerage account balance increase significantly.

I patted myself on the back and said great job David after all I went from an offer of $8.5 million and ended up with a deal worth $15 million.

Remember early on in this story were I mentioned that ignoring all the calls of Merger and Acquisition advisers may have costs me millions of dollars…well here is what I discovered and why I  founded United MedCare Capital to help business owners looking to exit.

If you paid attention in the story never once did I claim to know what my company was worth.  At the end of the day I was offered a number that sounded good.  In fact, had it not been for my efforts to reach out to Baran Rosen at Whitestone Communications I very well may have sold my business for $8.5 million…a little over half of what I received.  And business owners do this everyday without realizing the true value of their business.

Don’t let this happen to you…fill out the requested information below and take the next step to grow and monitor the market value of your business.

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• Complete Valuation/Market Opinion of Value Report
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