National Health Benefits Corporation was a healthcare cost containment company operating under Medical Capital Holdings with publicly traded debt instruments. When MedCap was taken over by the SEC for securities fraud, NHBC became an operating company under the receivership of Thomas Seaman Company on behalf of the Federal Government. When we became involved with NHBC, Thomas Seaman had a stalking horse bidder for the assets of NHBC and was actively negotiating an asset purchase agreement at $3.2MM. Thomas Seaman had received at least two valuations from valuation/investment banking firms that pegged the value of the company around this level. We won the engagement over the other larger investment banking firms including one who had presented a valuation.

We were hired to identify and bring to the table over-bidders for the assets of the company in what was to be an auction process. Other than our monthly fee, our compensation was based on a relatively high percentage of any upside we were able to generate. In this situation, the usually complicated dynamic of working with the business owner and management was further complicated by the necessity of complying with the constraints and mandates of the Receiver and the Federal Court. The challenge of succeeding was accentuated by a financial restatement and reduction in forecast midway through the process.

The traditional business model for healthcare cost containment companies is the negotiation of inflated out of network hospital bills in excess of the Medicare, HMO, or PPO rates. What we discovered through our engagement with NHBC management was that they had developed a very unique technology that enabled them to transform this traditional business model and offer a highly beneficial opportunity to dramatically cut and control healthcare costs on behalf of self-insured employers. One of the elements that was key to our success was our ability to translate internal “company/industry speak” into language that clarified the business opportunity.

The bond of trust that John Morris, Susan Vavak and I were able to forge was also of critical importance. As John put it at some point along the way, “I can’t spin you, because if you spin my spin, our information will not be credible.” This was very important as we worked customer by customer through the revised forecast. It prepared me to speak knowledgably with every buyer about every client. The ability to tell the story and have it be substantiated by the facts is always a key to success.

This was also true of our relationship with Susan and Thomas Seaman. Through our review of the proposed asset purchase agreement, we were able to substantially re-write important provisions of the asset purchase agreement to increase the form of payment, the timing of payment and the certainty of close all of which were in doubt based on the original document format.

We did our work very well. The company sold at auction for $7.05MM with an all-cash, fifteen day close.