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Selling to your future partner/employer Featured

9:45am EDT July 22, 2002
It was just a decade ago that a Cleveland-area investor paid Alan Groedel, at the time a 30-year-old former buyer for Victoria’s Secret, to write a business plan for him.

The investor had only one nonnegotiable demand: that the business be focused somewhere in the geriatric sector.

“I probably spent half of the two months [allotted] fumbling. Then I wrote the plan,” Groedel recalls.

That company became Provide-a-Ride, one of Cleveland’s biggest entrepreneurial success stories of the ’90s. A three-time member of the Weatherhead 100 list of fastest-growing area companies, by the end of the last decade, it had grown to about $3.2 million in revenues, led by its owner, the man who wrote the plan (Groedel bought out the investor’s interest soon after the company was launched).

Its success was especially noteworthy, given how tough this industry sector has become. Groedel’s company provides nonemergency medical transport through the use of specialized vehicles such as step vans.

He occupies a tiny niche of the medical industry, which has been rocked by declining federal reimbursement for coverage. Plus, he’s in a highly capital-intensive and labor-intensive field, which could easily be a recipe for failure.

For all those reasons, he says, “I had always been positioning it for a sale.”

And yet for a decade, he never got an offer.

It’s not hard to figure out why. His was an especially tough niche in which to make a profit: alternative medical transport, or AMT. While the glamour and profits were in the ambulance business, the opportunities there were winnowing for smaller companies.

During the 1990s, two national consolidators began buying up many local ambulance companies, including such players as Sue Olsen’s Metro Ambulance.

Margins in the homelier AMT sector of the business, meanwhile, weren’t quite at anemic grocery-industry levels, but neither were they very healthy, he says.

“It isn’t a highly valued business, because the margins aren’t high and the risks are significant,” he says.

The challenges lately have included an acute shortage of semi-skilled full- and part-time labor to drive the equipment and a near-catastrophic cut in Medicare reimbursement levels by the federal government, which has led to the undoing of such certifiable industry success stories as Geric Home Health Care, which went out of business last year.

Watching this landscape unfold around him, Groedel tried to prepare. He had been talking to Rural Metro Ambulance, a publicly held, Arizona-based national player, pitching it on turning over to him its alternative transport services in this market. The bigger company was clearly interested in some sort of arrangement, since it was losing money on those operations, even though its customers demanded it continue to offer them.

But Rural Metro was also listening to similar overtures from Baltimore-based Yellow Transport Inc., a multimodal provider of specialized transport services. And in the end, the courtee got the two courters together.

“They [Metro] introduced me to Yellow, and all of a sudden, someone [Yellow] was at my door, saying, ‘We want to buy you.’”

Yet, even while he was about to sell his company, Groedel never considered walking away with his cash. First, there was the fact that he wouldn’t make enough from the sale (which he declined to identify) to retire. At just 41, he has two small children, and says, “I’ve grown accustomed to a nice lifestyle.”

He also was sure his specialized knowledge would be essential to making the new joint venture work.

“I knew that the business was still at a state that it required the owner’s involvement. You need a fairly established, mature business in order to be able to walk away from it, in a mature industry. Our industry is still a new one,” he says, and his stand-alone company had neither the maturity nor sufficient management infrastructure to allow him to walk away cold.

Perhaps most important, he was excited by the new owner’s vision. It essentially boiled down to using Provide-a-Ride as the first local model for integrating alternative transport services into the ambulance business around the country, under a joint venture called HealthRide (the local operation has about 140 employees, about 60 more than before Groedel sold it).

The new owner’s tantalizing pitch to Groedel, as he puts it, was, “‘We plan on growing your business five-fold, and Rural Metro wants to duplicate it across the country, and you’re [still] involved.’ So I was anxious to be tied up with these guys.”

Only one problem: That would change the sale negotiations markedly. Rather than simply seeking the highest price for his company, Groedel now had to be careful to structure the deal more as one between two future partners, even if one was, in truth, working for the other.

“It’s amazing how quickly a sale like this changes the nature of the conversation,” Groedel says. “You’re not merely trying to get the most for your business,” but you’re also trying to strike the proper tone for a continuing relationship. “So the parties have to watch how they treat each other at the negotiation table. It was all the more important that everything was exactly as you said it was.”

It was here that he had the luck of the family draw: a lawyer brother with a background in securities transactions. Howard Groedel, of the law firm of Ulmer & Berne, was once a securities attorney in the enforcement division of the Securities and Exchange Commission in Washington, “chasing down bad guys,” as he puts it.

Now, his practice focuses on mergers and acquisitions in the middle-market, closely held field for Ulmer, among Cleveland’s most-elite business law firms. He’s been intimately involved in helping advise his brother with the business almost from the start.

“The most important thing he warned me is that you’re sitting across the table from your future partners, so I had to be careful of the representations I make about the company,” Alan recalls.

In a traditional negotiation of a business sale, the buyer is often interested in tying the former owner’s interests to the business for a period after the sale, in order to effect a smooth turnover and provide a bridge to customers and suppliers. That’s typically accomplished through financial incentives written into the sale agreement.

The difference here, though, was that “if you sell a company and (eventually) walk away, and later there’s a dispute, you give back some money or go to court to settle it. But here, you don’t want to go to court against your employer.”

Alan’s next hurdle: Convincing his wife it was the right decision.

It’s hard to bring a spouse up to speed” with the details of a business when he or she doesn’t work in it every day, he says. “It’s difficult, because when you start up a business and you’re successful, change is difficult [for the family]. Her concerns were loss of control and uncertainty. But what I had to sell to her was that running a small business in my field was very uncertain all the time.

“So I spent a great deal of time making my wife comfortable” with the decision to sell.

Again, he received help from his brother/attorney.

“When you’re an attorney, you’re always trying to do your best,” says Howard. “But when it’s kin, there’s a little extra pressure. I would say the deal was the subject of a lot of dinner-table discussion” in the extended family. He also talked to Alan’s wife, addressing any concerns his sister-in-law might have had.

“It wasn’t my job to convince her. It was to put this deal in context with other, similar, deals,” says Howard.

In the end, Alan seems at peace with his decision. As he talks about the sale, which closed around the middle of last year, at his home in Pepper Pike just before the end-of-year holidays, he takes evident pleasure in watching his toddler son come home and burst into the dining room for a hug from dad.

Even after the sale of his company, he says, returning to the conversation, “I kind of missed the feeling of being an employee, because I didn’t walk into a place with a system, I walked into an entrepreneurial environment that was fresh and unstructured. It wasn’t so much do this A and B, but, ‘How can we help you do this better?’”

It wasn’t a terrible adjustment, he says, “but it was an adjustment. I’ve got a boss, even though he’s out of town, and I have to give him some numbers and some idea of the direction I’m taking.”

Thankfully, he says, it hasn’t been too long since he’s had to answer to someone, back in the late ’80s, when he worked at that beacon of adolescent male fantasy, Victoria’s Secret.

“It was only 10 years ago that I was part of a team, and I remember what that was like.”

John Ettorre (jettorre@sbnnet.com) is a contributing editor at SBN.