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Positive Enterprise Value Blog Stuck – Two Partners, One Retiring?
Stuck – Two Partners, One Retiring?

Stuck – Two Partners, One Retiring?

August 10, 2022

3 minute read

Portsmouth, NH

How can one partner gracefully exit and move onto the next chapter, and the other continue on with the business, when most of their capital is tied up in the business? What if the business needs more investment at the same moment?

This was the exact predicament that Ken Johnson and Jay Hamel found themselves in. Ken Johnson and Jay Hamel first worked together in IT staffing and became partners in 2002 when they founded MAS Medical Staffing. The business grew dramatically over two decades ultimately becoming the number one travel and per diem nurse staffing for long term care facilities in New England. In addition, MAS was the largest provider of behavioral health professionals in Maine and a leading home health aide provider throughout New England. The little startup had become a tech enabled medical staffing regional powerhouse connecting 3,000 healthcare professionals with 1,500 facilities through 250,000 shifts each year.

The business found itself at an inflection point as it started to expand outside the region and was investing heavily in Maestra™, its proprietary scheduling technology platform. Ken was committed to staying with the business indefinitely. Partner Jay had long had a personal goal of retiring at the end of 2020.  The co-founders had different time horizons (I mean what would the likelihood be that two founders would have identical time horizons when they decided to become partners some twenty years prior?), and it was our goal to help them solve that.

MAS had been approached directly by investors over the years and occasionally took calls from industry specialist investment banks. Ken and Jay decided to hire one of the “industry specialist” firms they had a multi-year, albeit loose, relationship with.  The mandate was to find a new partner that could provide shareholder liquidity, but also support the company’s ambitious growth plan. Punchline is … that the process did not go well. There were many executed non-disclosure agreements, but, limited interest. A couple of meetings with investors resulted in one real Letter of Intent offer. That offer was ultimately turned down by Jay and Ken during due diligence because both the fit and valuation were questionable.  In a word…they were STUCK.

Bigelow was introduced to the situation a few months later by their accounting advisor who felt Ken and Jay needed a new plan. We had several great meetings to learn about what they had accomplished building the company. It was clear that MAS had a unique offering, strong market share leadership position, and great future potential. MAS was also in need of significant investment as the industry technology linkage between care givers and facilities was accelerating at a breakneck pace. In addition, the company was also taking its proprietary tech-enabled strategy on the road for the first time to the mid-Atlantic. Our enthusiasm for the business was however tempered by the fact that the business had just “gone to market” with another M&A firm. It would be highly unusual for an M&A advisor to represent a business within a year or two of an unsuccessful process. What has changed? How many good investors were polluted by the previous story? Would Bigelow’s very different approach change the outcome?

Ken was adamant about trying again quickly to find the right investor that shared his enthusiasm for the future of MAS and would allow Jay to retire on a reasonable time frame. Bigelow agreed to work with MAS, but only after MAS was all in for adhering to a very thorough and thoughtful approach, vastly different than what had been done previously.

Bigelow prepared MAS extensively. A third-party market study was commissioned to prove out the competitive leadership position and validate the growth opportunity. This had the added benefit of involving the entire senior management team which caused them to really refine the important drivers and needs for the business over the next few years. Armed with this more concrete management team view of the future, an aggressive but supportable growth plan was crafted. In parallel, a Quality of Earnings report was performed that validated the company’s financial performance by service offering and geography. With a stronger adjusted pro forma financial analysis, EBITDA was well documented and irrefutable.

Bigelow’s methodology is to talk to many investors but executed non-disclosure agreements with only the most compelled (typically less than 30). By using our investor interviewing and interactive positioning methodology, Bigelow determined which investors not only saw value in the company, but also why those would fit, and how they would assist the management team in making the future bright for all stakeholders. Numerous investors (including strategic acquirers, private equity platforms and stand-alone private equity investors) made economic proposals far in excess of (double) the previous process. Delirious that we uncovered investors that understood and valued the business better, the shareholders elected to invite five strong potential partners to meet with the senior management team.

One group demonstrated an exceedingly good fit: Periscope Equity, a Chicago-based private equity firm. They understood the customer base very well from previous investments, had a strong tech-enabled investment thesis and were particularly articulate about their approach to culture and enhancements to MAS’ evolving ability to be the provider of choice for the nurses.  Periscope Equity was ultimately selected to become the new majority owner of MAS. This transaction allowed Jay to retire, Ken to remain an owner and transition to a board member, and the senior management team was offered the opportunity to invest. Most importantly, this deep pocketed investor brought enthusiasm, resources, systems, and capabilities to help MAS reach a whole new level.

It is not often that Bigelow gets an opportunity to represent a business so close after an industry specialist failure, but getting Jay and Ken unstuck will always be a favorite outcome.

What I am Reading / Listening to

The Splendid and The Vile: A Saga of Churchill, Family, and Defiance During the Blitz (2020)
By Erik Larson

Contributed by Warren L. Widener

Erik Larson has been a well-known name over the past couple decades with works like The Devil in the White City (2003).  I recently received The Splendid and The Vile as a gift which is one of my favorite ways to find new reading material, allowing me to open the book without any advance knowledge of the narrative.

While I’m not a dedicated student of World War II I’ve always found that period of modern history fascinating.  In The Splendid and The Vile Larson takes the reader into a deep dive on Winston Churchill and his inner circle during his first year as PM in England.  Churchill came into power just before the Nazi’s embarked on their horrific bombing campaign in London and beyond – a campaign that lasted nearly a year without relief.

What struck me most about Larson’s detailed account of Churchill, his family, his political entourage, and the British citizenry was their incredible ability to endure despite the hardships they faced.  Daily air raid sirens. Nightly blackouts for fear of being seen by bombers.  Neighborhoods ablaze from incendiaries.  Massive bombs ripping through apartment buildings, factories, homes, hospitals, schools.  Tens of thousands of London residents perished in the Nazi blitz campaign.  Through it all, Larson displayed Churchill’s idiosyncratic strength and leadership; often shrewd, sometimes foolhardy, and never wavering.

Larson’s style makes you feel as if you are reading a novel and at times you forget the characters and the plotline are factual history. He does a masterful job of weaving in the personal lives and (sometimes mundane) details of daily life in Churchill’s world: family dynamics, personal love affairs, vacation time in the countryside, and late-night parties, all running parallel with the daily bombing attacks.  On multiple occasions throughout the book I couldn’t help but think of the contrasts and similarities between the Brits’ behaviors during the blitz to those of our society in early 2020 – faced with a global pandemic – how to maintain a semblance of normalcy when the world feels anything but.

I’m going to make a point to pick up some of Larson’s other works after really enjoying The Splendid and The Vile.

Entrepreneur Owner-Manager Quote

I just did not know the difference between M&A advisors. Having experienced both, I now know, that the Bigelow approach was unique, better preparation and teamwork which led to multiple partner choices at much greater valuations. Best of all, I was able to pick the partner that was best for MAS’s future.”

-Ken Johnson, Former Founder & CEO of MAS Medical Staffing LLC

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