Selling your company to the same private equity firm twice may sound a little crazy, but that's exactly what Bill Clendenen did. And if that doesn't seem implausible enough, consider that the first time he sold Medic First Aid, a publisher of CPR and first-aid training materials, the business wasn't even for sale. "We kept saying we weren't interested," Clendenen says.
He got interested in 2006, after executives from the Riverside Company, a New York City-based PE firm, flew to Eugene, Oregon, to pitch their rollup idea. To deal with his company's two major nonprofit competitors, the American Red Cross and the American Heart Association, Riverside would use its Micro-Cap Fund, which acquires businesses with up to $10 million in ebitda, to acquire a majority stake in Medic First Aid. Then it would merge it with another competitor, a safety and health certification company called the American Safety & Health Institute. The combined entity would be rebranded as Health & Safety Institute.
The strategy was to transform HSI into a technology-enabled health and safety training company. Medic First Aid published and sold books and certification cards, so it needed to digitize training materials and build an online learning platform. "There's always going to be some skill testing, but a lot of that training can be done online, and it's a much more efficient way to do it," says Joe Lee, a partner at Riverside.
Clendenen describes digitization as both a defensive and offensive play. "We knew the market would get there eventually, and we didn't want to be the last one there," he says. With a backer like Riverside, he could be more aggressive. "We would just be too risk averse," Clendenen says. "That's when we made the decision."
One pillar of Riverside's strategy is applying the operating-partner model, which involves an operations executive working alongside a portfolio company CEO on specific initiatives. In this case, that ops exec was Jeff Tobin. "He'd parachute in and we'd brainstorm," Clendenen says. "That I found very helpful, because Tobin was an experienced former CEO, had been in my shoes, and understood the challenges I was facing."
During a six-year period, Riverside helped HSI hire executives and make acquisitions that allowed the business to expand into training and certification for fire and emergency medical services professionals. In 2012, having grown ebitda from $3 million to $8.3 million, Riverside started looking for an exit--in PE-land, every good story has to have an ending. It found one in the form of Park City, Utah-based PE firm DW Healthcare Partners, which expanded the business for three more years before taking HSI back out to market.
By then HSI was the perfect size for Riverside's Capital Appreciation Fund, which invests in businesses with ebitda of $10 million to $35 million. "One reason I wanted to sell to Riverside again is I knew that they would help me hire the right new management team," Clendenen says. The second time Riverside bought the company, HSI's sales had grown fourfold and its ebitda sixfold, and it had a much broader customer base. And more customers: 40,000, up from 4,220.
After a decade-plus of partnering with PE firms, Clendenen, now a board member of HSI, says he has no regrets about selling in 2006. "I can't imagine doing alone what HSI has become," he says. "It never would've become what it is today without private equity."