My First 6 Months as a CEO (Searchfunder Interview)

SEARCHFUNDER INTERVIEW OF TYLER COATS 

We spoke with Tyler Coats, whose Cascadian Capital purchased Falcon Critical Care Transport in May of 2017. 

In this article, Tyler discusses the perseverance and firefighting required to get a deal through closing as well as his first 6 months as a CEO.  

How did you find your company? 

I was focused on the healthcare sector. I randomly came across the ambulance industry via an individual deal in Los Angeles that was brought to my attention through a friend of mine. I sent an NDA and we went a fairly long way in discussions, but we couldn’t come to agreement on price. I learned enough about the company and industry and liked what I saw. So, I decided to delve more deeply into the ambulance industry. As far as I knew, there hadn’t been any search fund deals in this space yet.

I started putting together lists of ambulance companies and doing outreach. I went to a few ambulance conferences. I came across Falcon about 6 or 7 months into my search. Within the first week, I got face to face with the owners. We were both in the Bay Area, which made it convenient to meet in person over lunch. We hit it off and started to build a good relationship. As it turned out, they were just getting ready to take it out as a broker deal. They were very set on selling. They liked my message and story. Thus, we were able to do it as a proprietary deal.  

We signed an LOI about two months later. The due diligence and closing process took about a year because some contracts that were part of the deal were delayed.   

How did you find Falcon?  

We found Falcon through cold outreach. 

Talk about the transition?

Fast forward a year toward closing. Before we closed, we had 5 or 6 major issues and each one looked like it would kill the deal.  

I had bank financing lined up and some separate asset financing for the vehicles lined up. About a week before closing, the asset lender ended up backing out and decided they didn’t want to provide financing. That left about a $1 Million gap in funding. I could try to raise more equity or debt. It put me in a tough position. I ultimately ended up being able to raise a bit more equity and was able to increase my term loan.  

We finalized our insurance quotes about 3 or 4 weeks before the loan issue. By the time we resolved the loan issue, the insurance company decided they needed to re-quote because some time had passed. Some issues arose and they then declined to quote. As it turned out, the ambulance market was such a niche market that there are just a few providers that understand and specialize in the niche. Thus, securing new insurance delayed us a few weeks.   

There seemed to be 5 or 6 times where issues arose and it felt like the deal would die.  

How did you handle the stress on a personal level?

Everyone talks about the ups and downs of the search process. And, that is definitely true in those situations. One week it seems there is no problem. You hit this high feeling. Then, that big issue pops up one day and there’s this huge sinking feeling. You have to take a deep breath and regroup. The next day you start diving in: “Alright. This is the problem. What are the potential solutions?” After you spend a few days on that, you realize there may be some options to fix the problem.   

A lot of times when the problem first comes up, you can’t think of any solutions and you do not know if any solutions exist. It’s tough. The real sinking feeling comes from not knowing if there are solutions. Best case scenario, you have a delay as you spend extra time looking for solutions. At the same time, you know that time kills deals. Adding more time to close means you are adding more time for other issues to arise that will also kill the deal. I certainly ran into that situation. I was consequently firefighting to get to the close of the deal.  

What was the first day like after buying the company?

The employees didn’t know that the transaction was happening. I met the sellers at 9 am. They called the management team at 10 am. We met with the management team together. The sellers did a short intro and announced that the company had been sold. It was a surprise for everyone and a shock for some employees. I introduced myself. Immediately after, we sent out a company-wide email. (We have 180 employees with the majority being EMTs and nurses out in the field. So, it’s impossible to meet everyone on Day 1). I did my best to hit the talking points. I put together a script: I’m not coming in to make changes. I didn’t buy the company because it has problems, but because it has a good story and good growth profile. I am here to support you and help you to continue to grow. I bring investment, advisors and additional capital to help scale company. I’m not here to cut costs or fire people.  

Over the course of the next week, I did 1:1s and lunches with managers to try to get to know them better on a personal level. You can say all that and give that message as best you can, but employees still get very nervous about transitions: Are their jobs safe and what does it mean for them personally? You have to provide a lot of reassurance -- without making any promises.  

Did you have any pleasant or unpleasant surprises in starting to run the company?

I am a big believer in not changing anything in the first 6 months, try to get your bearings and learn the company the best you can. We did have to do a change from cash to accrual accounting because we had the GAAP accounting requirement for lenders and investors. It was quite a change. 

I had a temporary part-time CFO to help with that transition. We transitioned from QuickBooks desktop to QuickBooks online. I hired an outsourced bookkeeper. Then, I had to work with our billing department to put in procedures to come up with an accrual based accounting system for revenue. This is a lot more complicated for us because we have a reimbursement based revenue system as a healthcare company. When you perform an ambulance trip, you don’t know how much you will be paid because it depends on the payers’ insurance company, whether it’s Medicare, MediCal or a private payer. There was a lot of work to do around developing that system.  

Simultaneously with doing that, we identified some other risks around how payroll and HR were administered. We implemented a new outsourced payroll provider and put in HR software. These fixes were a little easier than the cash to accrual conversion, but still they took some mindshare and effort to implement and get executed. All of that took place in the first month. Those were the big items from the first month. For the most part I was trying to change as little as possible but identified those elements that needed to be done immediately from a risk mitigation standpoint.  

What has been your focus since then?

Quite a few things. We performed a reassessment of roles and responsibilities of senior management. One of the major issues we had been facing was the recruiting and hiring of EMTs. We reorganized those responsibilities to have one of our senior managers take over sole responsibility for hiring of EMTs. We had him develop a process for managing our online ads, recruiting and the pipeline for reaching out and setting up interviews as well as streamlining the process for hiring, recruiting and onboarding.  

We had to shift to electronic patient care reporting (essentially electronic health records). It is required to be implemented by the end of this year. We began working on that at end of June and expect to have it fully rolled well before year end. 

We implemented a new fleet logistics software.  

We’ve been focusing on new contracts and the core business aspects. We’ve been growing quite a lot. That means, buying new ambulances and expanding the ambulance fleet. We’ve had new growth opportunities, such as expanding the locations in the Bay Area.  

I’m going to show my ignorance about the ambulance market. What do you mean by new growth opportunities?

I mean contracting with hospitals. We contract with hospitals to provide ambulance transport for them.  

How are you learning about the industry? Did the old owners stay on-board or do you have advisors or consultants?

The son and daughter of the old owner are still here as part of the operation in senior leadership roles. The old owners had been retired for the last four years. They had exited from the management of the business.  

One of my board members was COO of Iron Mountain, which is a major logistics company. So, I rely on him for a lot of advice. We have a ten-person management team that is strong. Thus, I am relying on them for the more healthcare related questions.  

What advice would you give someone who is just acquiring their company?

Focus on the employees and dedicate the time to get to know and build relationships with them. You can learn a lot in 6 months. You need to rely on them to learn from and to continue to operate the business. The majority of the challenges are going to be those HR-type or personnel issues. The sooner you can build strong relationships the easer your life will be.  

Do you foresee doing any strategic planning around the culture?

The company has a good culture. The emergency services industry has a lot of overlap and alignment with the military which I had experience in before. They both have a mentality and a culture of service and helping people. It gives people a sense of worth and they believe in what they are doing. Thus, maintaining that culture is important and is aligned with where I see the company.   

Thank you.

Summary of Insights

Here are a few of the key takeaways from our discussion with Tyler:

• • When a hurdle arises in closing the deal, it may create additional hurdles adding risk to the closing. That’s the time to get into problem-solving mode.
• • During the transition, employees may need a lot of reassurance, even though you can’t provide commitments.
• • While there are changes you must make in the beginning (such as converting from cash to accrual accounting), focus the first 6 months on building relationships.