SM: How did you respond when your initial MedAssets business model did not work as well as you had hoped?
JB: I was presented with an opportunity to acquire InSource Health Services, which was a small group purchasing organization formerly known as the Southern California Group Purchasing Services. That was in August of 1999. I raised private capital to fund that acquisition. That marked the beginning of our focus on creating a more rational, transparent, information technology-based market using group purchasing services.
SM: Your original hypothesis involved taking old equipment, refurbishing it, and selling it back to hospitals via the Internet. That did not pan out, but you then seized an opportunity to acquire a company in supply management?
JB: It was actually a traditional group purchasing business. Literally 60 days after I started the company that opportunity became available, which got us into the supply management and contract management business for a broad range of products, not just capital equipment. That began a journey of building a better model for delivery of best practice for procurement of medical products of all kinds for US hospitals and healthcare providers.
SM: How broad was the range of supplies?
JB: Very broad, with over 1 million products which could be purchased through a group purchasing option. We were off and running, building technologies, when in September of 2000 I began having discussions with Earl Norman. He was the sole owner of Health Services Corporation of America out of St. Louis, Missouri. It was another large group purchasing organization, and we ultimately completed a transaction with them in the late spring of 2001 which gave us excellent bulk. We became a much larger participant and competitor in the group purchasing industry.
We also inherited some outstanding technologies in that acquisition from which we could invest in technology that enabled greater transparency and access to best pricing. We were also able to offer management of the supply chain through our group purchasing business. That was really a critical element of our growth.
SM: Your strategy appears to be a roll-up of group purchasing services companies.
JB: Not really, we just had to have a foundation initially. You can’t get price without volume, and you can’t get volume without price. We were not planning on doing a roll-up, but we had to get a couple of acquisitions initially in order to get a foundation. Without that foundation you cannot command price.
SM: Can you talk a bit about your financial engineering? How did you get those early acquisitions since you were not acquiring them out of revenue or market cap?
JB: We had to raise financing, and I was very lucky. As good as you think your planning might be, you are always more subject to market conditions than anything else. We were very fortunate that we were able to raise capital in the company in the summer of 1999, when capital venture and private equity was truly available. When we acquired HSCA, another enormously important form of financing was the seller. He essentially provided all seller financing for us to do the transaction. On the front end our early investments were venture-based.
SM: How much did you raise?
JB: Our initial investment between Gayland and Parthenon were approximately $55 million.
SM: Was it based on your original thesis of refurbished equipment or had you revised your business strategy?
JB: It was based on the original model. We got a commitment of just under $60 million.
SM: Where were your investors from?
JB: Gayland is based in New York and Parthenon is based in Boston. It turned out that during the dot-com era, we were the only investment that had a return for either fund. Capital dried up shortly after.