The interview below is part of a series from McGuireWoods that features interviews with C-suite leadership of private equity-backed portfolio companies. To recommend a leader for a future interview, email Holly Buckley at [email protected].
Q: You grew your organization prior to private equity investment, joining with partner physicians throughout Ohio. How was your business evolving leading up to your partnership with private equity (PE) investment in 2017?
John Macke: We had been very successful partnering with physicians and practices throughout Southwest and Central Ohio, growing Dermatologists of Central States (DOCS) into one of the largest private dermatology practices in Ohio. Through that growth, we were able to realize several synergies and benefits that advanced our physicians and practices. As a result of that success, we began receiving more inbound interests from other practices, including groups from neighboring states.
As we began exploring these opportunities, we recognized that a significant investment in the business was required. We would need to build out a management team and make a significant investment in the infrastructure of the business. This was challenging due to the structure of our business, which would necessitate our owners personally funding that investment. After careful consideration, we determined it was too risky for our physician owners to make this investment and considerably slowed down our growth.
Q: What ultimately attracted you to PE?
JM: Initially, we didn’t seriously contemplate a partnership with a PE group. To that point, we had mailed a letter to physicians throughout the region stating we were an alternative to PE-backed groups.
However, around this same time, we met with an investment banker with whom we had a previous relationship through our laboratory practice. The banker posed several different options to us, including pursuing a sale that would be based on a managed services agreement (MSA) model. We skeptically agreed to running a small process with a select number of PE groups.
After meeting with several of these groups and discussing the MSA model, we ultimately determined that we should pursue a sale of the entire practice and our lab. Through our initial MSA process, we felt we found the right partner in Sheridan Capital Partners that would allow us to make the necessary investment in the business to restart our more aggressive expansion plans while still maintaining the culture of our private practice.
Q: How do you ensure the platform’s organizational culture is appropriately conveyed to potential targets?
JM: We attempt to partner with practices whose existing cultures align with ours. To ensure this, we work closely with the physician owners in the early stages of our discussions. As a result, we spend more time on the front end vetting a practice and ensuring it will be a good fit, versus trying to meld a practice into our culture after entering into a partnership. To that point, we have walked away from a number of deals that did not align culturally. This is not to say that the practices were not well-run or strong practices; rather, we didn’t think they would be a good cultural fit for us.
Once we partner, we work closely with the physician leadership and management teams to thoughtfully plan our integration. Obviously, there will be some differences between the organizations, but through effective communication and being available and present, we are able to blend any differences between the cultures.
Q: Your partner practices have had particularly stable relationships with their physicians. What do you think is the key to retaining this talent/leadership in your organization?
JM: I think the key to the stability in our practice is our physician leadership. Our practice is firmly rooted in a traditional, physician-led and provider-centric private practice model and culture. Our management team focuses on building an environment that creates a culture consistent with a private practice while, at the same time, ensuring we are compliant and the business functions of the practice are optimized. Additionally, all our physicians can be very involved in the operations, either directly or through our clinical advisory committee.
We also work closely to integrate their existing management teams into our organization. These staff members are a large part of why the groups have been successful. Ensuring they have a prominent role and stability within their new organization provides great comfort to the physicians. I think this ultimately creates a tremendous amount of trust with the physicians and that leads to tremendous stability.
Q: How are you thinking about growth as we continue to face uncertainty with COVID-19?
JM: COVID-19 was obviously very disruptive to the business. However, due to our strong physician leadership, we were able to successfully navigate through the pandemic. As we come out of it, I think we are better-positioned than ever for growth. Interest in joining DOCS from physicians and practices has increased since the pandemic was declared. I believe this is largely due to the way our physician leadership team proactively handled the COVID-19 situation. The time they spent communicating and working with our physicians and staff reiterated that sense of a private practice, which resonates with the physician community. In many of our current discussions with physicians, a comment we have received consistently is they are interested in DOCS due to how we handled the COVID-19 pandemic with our physicians and staff.
We continue to have a similar outlook on growth as we did prior to COVID-19. The pandemic has caused us to slow down our growth in the near term, but as we come out of the pandemic, we fully anticipate strong growth in the practice. We see tremendous opportunities for organic growth in our clinics as well as small and large acquisitions to expand and complement our existing footprint.
About John Macke
John Macke is chief executive officer (CEO) of Dermatologists of Central States (DOCS). Located throughout the Midwest, DOCS is one of the largest and most established dermatology practices in the nation, with more than 155 providers. Prior to becoming CEO of DOCS, Macke served as chief operating officer and practice administrator with Dermatologists of Southwest Ohio and was CEO of Dermatopathology Laboratory of Central States. He also served as practice manager for Adena Health Systems. Macke holds a B.S. in business from Wright State University and an MBA from Indiana University’s Kelley School of Business.
To contact John Macke, email [email protected].