SM: Your raised $55 million from two firms and then quickly had to change course from your original investment thesis. How did the investors react to that?
JB: They have been terrific. They have been involved in every major decision the corporation has made, and they remain very active on the board.
SM: I am very complimentary that you were able to make that turn and that your investors were willing to support you.
JB: Our investors were very smart people, and all of them had prior investment banking and consulting backgrounds. They were able to get deeply involved in strategy. Early on when we were raising money, I said that I did not personally believe that the metrics associated with dot-com valuations were sustainable. I also said that from the beginning we had to be a business that earned money. We were highly focused on re-establishing our approach and on bringing businesses in that we understood, which were profitable, and had leverage for continued growth. It was important to have improving margins.
The group purchasing industry was consistent with our original strategy although it was a different angle. They were deeply involved in understanding that and they were terrific about that. They were not just investors, they were truly strategic partners.
SM: That is good to hear. That is awesome.
JB: At any point in time, had they not agreed or had they been difficult it could have sunk the company.
SM: Your second acquisition is very untraditional as well.
JB: It was a transaction that was done on a handshake between Earl and me. I had known Earl for many years, particularly when I called on him when I worked for Baxter. We had a good relationship. When we agreed to the transaction in September of 2000, I could not raise any money. My investors, from a fund basis, were tapped out. Relative to the metrics required by their own funds, I could not raise any more money from them. After the dot-com bubble all primary private equity had dried up. There was no bank credit.
We worked for five or six months and could not get as much as $1 raised. In the end we needed a little bit of debt capital, which was ultimately provided via Earl Norman’s banking relationship in St. Louis. Once we were introduced to that banking relationship, we had the transaction funded within four weeks. We ultimately closed the transaction in the spring.
SM: Why did Earl want this transaction?
JB: At the end of the day, he trusted us. He believed that we would honor his company and treat his people right. He had spent 20-plus years building the business himself and he was at the end of his time. He had earned a lot of money and wanted to entrust his business to somebody who would carry it forward. I promised him I would not eliminate the offices in St. Louis or Missouri, and I have remained true to that. He really owner-financed the deal. Earl took back stock which he could put back to us at a certain valuation, which he did.
SM: How big was Earl’s company at the time?
JB: It was approximately $21 million in revenue but very profitable.