Geoffrey Briant remembers the deal that promised to quadruple the size of his company, Care Point Medical Centres Ltd., thereby transforming the business into a B.C. health-care player. It was February 2003, and Shoppers Drug Mart had signed a letter of intent to finance the creation of Care Point’s walk-in clinics near up to 31 Shoppers locations in B.C. When Briant tabled the offer at Care Point’s next board meeting, the directors could not have been more hopeful.
“Everybody determined we had a big opportunity,” says Briant, Care Point’s now-former CEO. Ironically, it would be the last time Care Point management could agree on anything before filing for bankruptcy protection 15 months later. In the meantime, the Vancouver-based company developed a galloping case of overexpansion complicated by a history of inconsistent leadership and virulent employee relations. Today, Care Point is off the critical list, but the story offers valuable lessons to any company contemplating a bold expansion—without the financial or human capital to support it.
Founded in 1986 as Consolidated Care Point by Geoffrey’s late father, Peter Briant, the firm supplied management, facilities and administrative and medical support staff to the doctors practising in its clinics in exchange for a fee. By 2003, the firm operated 10 clinics in B.C.’s Lower Mainland that generated annual revenue of $8 million. Its 60 full- and part-time physicians treated 1,200 patients a day.
Care Point’s slow, steady growth had always been internally financed. “Every time Care Point made $200,000 in retained earnings, they would pay cash to build a new clinic,” says Geoffrey. “But that was an agonizing process. A comparable company in Toronto had grown to 32 clinics in the same period of time.”
Enter Shoppers Drug Mart. Eager to generate additional prescription business, the drugstore behemoth approached Care Point in 2001 and offered to help it lease new locations at favourable rates at sites close to existing Shoppers outlets. It would also cover the full cost of renovating the spaces to Care Point’s requirements, although it wouldn’t cut the cheque until the new locations were operating. Geoffrey pushed hard for the expansion, and in February 2003 replaced his brother-in-law as CEO to oversee the project. The then- 52-year-old would be the company’s first Vancouver-based chief executive; Briant’s predecessor was based in Toronto, while his father, the company’s chairman and largest shareholder, lived in Montreal.
“I calculated that we needed $1.2 million just to cover the negative cash flow of doing the first wave of tenant improvements till we opened the doors,” says Geoffrey. He raised $1.5 million in equity from a local venture capitalist, but says his father killed the deal. Next, Geoffrey secured $1.2 million in subordinated debt from Vancouver-based Vancity Capital Corp. Again, Peter Briant intervened. “On five occasions, I raised the money in combinations of all equity, some equity, some debt,” says Geoffrey. “It could have worked, but the controlling chairman turned down new financing.” At 79, Peter was an old-school entrepreneur who didn’t believe in carrying debt, says Geoffrey: “‘Can’t we do this without borrowing?’ he asked me. ‘No, we can’t,’ I said. ‘The Irvings strung out payables to expand,’ Dad said. ‘I think we should do the same thing.’ So, his idea of financing was to string out the payables.”
Geoffrey says he implemented his father’s strategy. Instead of the usual 30 to 60 days, Care Point’s suppliers were paid in 180 days. “I told Dad, ‘This isn’t going to last—it’s a disaster waiting to happen’.”
The ongoing quarrels with his father, who died in October 2005, led to Geoffrey’s ouster as CEO in June 2003, though he was later rehired and given the role of vice-president and chief strategic officer. Peter moved to Vancouver and took over as CEO, only to relinquish the role that September to Roger Lundie, a 17-year veteran of Care Point.
Lundie had been Care Point’s de facto caretaker on behalf of Peter Briant for years and was in favour of expanding. “I knew the real estate,” he says. “I knew the people involved, the people we were partnering with.” So, Lundie proceeded with the expansion plans initiated by Geoffrey, establishing six clinics and a new head office over the next six months.
“We had a very aggressive growth pattern, but unfortunately the fundraising didn’t occur when it was supposed to,” says Lundie. “And that became a very big problem: too fast expansion without the requisite funding.” In the three months ended Dec. 31, 2003, Care Point lost $463,000 on net sales (after payouts to doctors) of $1.2 million, prompting the board to spin the revolving door on the CEO’s office again.
Dr. Anan Kour was Care Point’s fifth chief executive in a year. But unlike his predecessors, Kour inherited a terminally ill patient. Although Care Point’s revenue rose to $2 million in the three months ended March 31, 2004, up from $1.6 million for the same quarter a year earlier, losses grew to $837,000. Strapped for operating capital, Care Point missed rent payments for two months running. Then one of Peter Briant’s key supporters on the board quit, tipping the balance of power against him. The remaining directors petitioned the company into bankruptcy on June 6, 2004.
“If there’s a lesson for PROFIT readers,” says Geoffrey, “it’s to make sure expansion is fully capitalized.”
But Dr. Michael Polay, a physician at Care Point’s Commercial Drive clinic for the past five years, blames Care Point’s problems on the mismanagement of human rather than financial capital. “The manpower wasn’t there,” says Polay. “That’s what really sank them.”
Polay notes that the acute shortage of physicians in Canada stymied Care Point’s ability to staff its rapidly expanding chain adequately—a fatal flaw for a company that attracted patients with the promise of convenience and consistency of care. (Successful clinics employed two doctors who worked exclusively out of a given location, meaning regular patients were likely to be treated by a familiar face.) As the new clinics struggled to attract repeat clientele, the whole company suffered. Suddenly, a chain that was once highly regarded by doctors became an undesirable place to hang out one’s shingle. “The medical community is a small community,” says Polay, “and the jungle telegraph is very efficient.”
Remuneration also became an issue. On the strength of its longevity and reputation as a premier care provider in Vancouver area, Care Point was able to demand a 42.8% cut of clinic revenue in exchange for its services, compared with the industry standard of 35%. But doctors’ tolerance for what Polay calls “the lowest pay in the Lower Mainland” declined in lockstep with the firm’s public reputation. Nor did long-time Care Point doctors appreciate the extravagance of the new clinics. One such location in the tony neighbourhood of Kerrisdale “was a palace,” says Polay. “They had all new computers with flat-screen monitors they didn’t need.”
Polay and Geoffrey Briant may differ over the diagnosis, but neither can deny the outcome. The bankrupt company was put up for sale in July 2004; a month later, it passed, in pieces, to new owners.
Pender Health Management Inc., a private subsidiary of the publicly traded Vancouver-based merchant bank Pender Financial Group Corp., paid $662,000 for Care Point’s 10 most successful clinics, plus $150,000 toward the shortfall in doctors’ salaries. The remaining clinics were purchased by Trafalgar Health Clinics Ltd., also of Vancouver.
Pender Financial had been watching the firm ever since Care Point approached it for capital in 2003, and was eager to buy theÃ‚Â business out of bankruptcy, notes Kelly Edmison, Pender Financial’s president and CEO. His enthusiasm was short-lived. “The first morning, we had this meeting with the doctors, and they were furious,” says Edmison. At issue was the uncertainty, the revolving management door, lack of communication and the bankruptcy, which threatened to cost each doctor about $10,000 apiece. “We walked away with our shoulders drooping, saying, ‘Geez, what have we got here?'” recalls Edmison.
“We weren’t blind to the problems,” adds Mike Cyr, Pender’s general manager of the clinics, “but we certainly didn’t realize the scope of the problems.”
Edmison concurs with Polay’s analysis of Care Point’s troubles. He believes a full roster of happy physicians is the key to a successful chain of walk-in clinics.Ã‚Â With enough doctors, the clinics could be open full-time, serving a full quota of patients and earning maximum income.Ã‚Â “We did what we needed to do to calm the waters,” says Cyr. “The doctors had done an incredible job of keeping the clinics open and operating. Their commitment ensured that the brand didn’t suffer more grievously than it did.”
Pender moved quickly, negotiating a new base-income split that gave Care Point 37.5% of revenue, much closer to industry norms than under the previous owners. The gesture, says Polay, signalled a shift in attitude. Just as important was a raft of small measures—Christmas parties, meetings to discuss medical issues, improved communications—that added up to respect. “They put in measures,” says Polay, “that made us understand that we were seen to be important.”
“We started a weekly newsletter announcing new hires, talking about the upcoming flu season and providing news on the bankruptcy proceedings,” says Cyr. “And we tightened our belts, so the doctors would see that the clinics were in responsible hands. The old company was in lavish corporate offices. We’re not. They were overstaffed on the administrative side. We’re not. We’re making smarter decisions at the clinic level.” New management also put $200,000 into clinic repair and new financial reporting systems—and halted the practice of stretching out payables to the physicians.
Within a year, Care Point’s core roster of doctors rose to 80. In February 2006, it opened its first new clinic since the bankruptcy.
Such forward momentum caught the eye of CBI Health, a Toronto-based operator of 120 rehabilitation clinics. In August, CBI acquired Care Point for $2.5 million. The acquisition allows CBI to integrate its existing rehab clinics with primary care. “We took a business that was in trouble,” says Edmison. “We managed it properly, put in good people and systems, and got the doctors working with us instead of against us.” Sounds like a prescription for success in any business.