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What's Mike Fernandez's Encore?

Mike Fernandez
As a teen, Mike Fernandez was a student of the rich, studying their personalities and gestures. The philharmonic, he says, “was a place where I went to learn what I wanted to be.” [Photo: Eileen Escarda]

For years, Brian Moroney, a teacher at an elite Jesuit high school in Manhattan, took a few of his students to the New York Philharmonic to broaden their minds. Decades ago, one such student, Miguel B. “Mike” Fernandez, a Cuban refugee, particularly impressed Moroney with his maturity, his humility and how at peace he was with himself. “Nothing to prove,” says Moroney, who was also struck by the freshman’s devotion to the arts.

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For Fernandez, however, the attraction of the philharmonic wasn’t the bassoons on the stage, but the tycoons in the audience. He went to the concerts to study the wealthy, he says. “I would sit around and watch how they talked to each other and how they nodded their heads and how controlled they were in their personalities,” recalls Fernandez, 55. “They didn’t speak with their hands as much as people that I knew. It was a place where I went to learn what I wanted to be.”

Fernandez Affiliates

Dental insurance provider Atlantic Dental, Coral Gables, 650,000 members, founded in 1997 by Fernandez. Slated to be sold later this year on undisclosed terms to dental benefits administrator Doral Dental.

Hospitalists of America, Coral Gables, a provider of 250 specialists in hospital care to 65 hospitals. Owned by Fernandez’s private equity firm.

Medical Specialties Distributors, Stoughton, Mass., a medical supplies distributor, largely to the infusion therapy market. Purchased in 2005. $180 million in annual revenue.

Navarro Discount Pharmacies, Miami, 31 stores, 3,000 employees, $350 million in annual sales. Nation’s largest Hispanic-owned pharmacy chain. Purchased a controlling interest in 2007. Added Sedano’s Pharmacy & Discount stores, which have been converted into Navarro stores.

FDC Vitamins, Miami, vitamin manufacturer and distributor. Owned by Fernandez’s private equity firm.

He learns well. His ventures in managed care and other healthcare enterprises over the past 15 years have returned an average 133% a year. He owns a mansion on Biscayne Bay, a 161-foot yacht, a home in Utah and a quail-hunting plantation in Tallahassee. He heads one of the largest Hispanic-run private equity funds in the United States. Later this year, after decades operating in the private company sphere, he will for the first time take a company, Critical Homecare Solutions, into the publicly traded market.

And, thanks to those philharmonic visits, his manner is to the manor born, 44 years removed from his childhood as a shopkeeper’s son, living above a warehouse in a dirt-road town in southeast Cuba.

In 1964, when Fernandez was 12, his parents fled Cuba with him and his sister. Once in Manhattan, he earned admission to the prestigious, all-boys Xavier High School where Moroney taught. He was only a C student there. In college, he quit pre-architecture on the first day because the dean said the profession was about love of art, not doing well financially. Fernandez was drafted, joined the 82nd Airborne and never finished college.

In 1976, at 23, he was in Miami, selling life insurance. On the side, he was finding his path to fortune, selling healthcare insurance to Air Florida for its fewer than 50 employees. As he landed other airline clients and as Air Florida grew to employ thousands, Fernandez’s commissions soared. He also met Cesar Alvarez, Air Florida’s executive vice president, who later would lead one of Florida’s largest law firms, Greenberg Traurig. Fernandez is “a great listener,” Alvarez says. “He really likes to find out about things and how anything works.”

Fernandez sold his airline healthcare insurance business — cashing out would become one of his hallmarks — but stumbled in his next venture, a database of group health insurance information that he expected agents would buy so they could comparison-shop for rates. Instead, insurers wanted it. “It took a couple years to figure that out,” he says. “I told you I wasn’t very smart.”

As a prelude to a public offering, he had borrowed against his home. When the offering fell apart, he says, his accountant and attorney recommended he file for bankruptcy. Instead, to pay his creditors, he sold his home and his car and moved his family in with his parents. Alvarez, by that time at Greenberg Traurig, remembers Fernandez coming to ask about his recourse in the underwriting fiasco. “He was really hurting,” says Alvarez. He counseled Fernandez that instead of spending up to eight years in a “negative way” litigating, he would do better by doing something positive with those years.

Mike and Constance Fernandez
Fernandez with his wife, Constance. Fernandez’s relaxed demeanor belies his drive to succeed. “My doctor will tell you that I internalize it,” he says. [Photo: Eileen Escarda]

So Fernandez focused on building the company, selling it in 1990 to Ramsay HMO, for which he became an executive. In 1993, he founded a Tampa-based HMO, Physicians Healthcare Plans. He sold that company in 2002; the same year, he founded another HMO, CarePlus, which he sold in 2005. Together, the two sales grossed $607 million.

He and his co-investors in CarePlus gave $28 million of their take to employees to reward them for their contribution to CarePlus’ success. Fernandez also has been a major donor to his high school alma mater and to the University of Miami and local non-profits. “The opportunity this country gives to people who are not born here is unique,” Fernandez says. “I could not have gone from Cuba to France and been accepted the way I was accepted here. I could not have gone from Cuba to Venezuela. Only America is such a unique, wonderful, vibrant, beautiful country (where) things happen magically.”

His thinking was reinforced by the fear and economic stagnation he saw in 1998 on a return to Cuba to visit his dying grandfather. In his old home, he found a family still using the same furniture his parents had left 34 years earlier. A childhood friend still rode the same bicycle Fernandez left in 1964. Another friend became a hero to the regime fighting for Cuba in Angola, but then had been jailed for five years for taking milk from his barracks for his daughter.

As soon as Fernandez cashed out of CarePlus in 2005, he formed a $240-million private equity firm, MBF Partners, with two executives he had known for years, Marcio Cabrera and Jorge Rico. They sift through 300 companies a year to find a handful that suit their parameters: Operating healthcare service companies — no startups — with $5 million to $25 million in annual earnings, companies to which the partners can contribute expertise as well as capital.

Fernandez, a strategist and deal maker, also is strong operationally, “which is unusual,” says Coral Gables developer Armando Codina. Says fellow entrepreneur Carlos Saladrigas, “He can see an opportunity when other people will pass by.”

To go after more opportunity, Fernandez and his partners raised $172.5 million in 2007 to start a blank-check company called MBF Healthcare Acquisition Corp. The blank-check vehicle is a tactic used by Fernandez’s longtime investor and friend, Phil Frost, founder of generic drug maker Ivax, as a fast, low-cost way to raise money and take a private company public. Joining Fernandez’s board were Saladrigas, Roger Medel, founder of Sunrise-based neonatal physician provider Pediatrix, and Antonio Argiz, managing partner of Miami-based CPA firm Morrison, Brown, Argiz & Farra.

Fernandez’s blank-check plans to pay $420 million to buy a fast-growing private firm, Critical Homecare Solutions, based in Conshohocken, Pa. The company, with $210 million in annualized revenue, acquires home infusion therapy providers and aims to be the leading infusion therapy company in the nation. The market for infusion therapy outside the hospital setting is $11 billion to $13 billion a year and is highly fragmented, with 1,000 to 1,200 providers, says Russ Bodoff, executive director of the National Home Infusion Association. But it’s consolidating. Walgreens recently spent $850 million to acquire Illinois-based infusion therapy provider OptionCare.

Critical Homecare, says Fernandez, serves 19,000 patients from 65 branches and has before-tax earnings of $43 million. The fourth-largest home infusion provider in the country, the company has better margins than its three larger rivals and is moving toward higher-margin therapies. The four largest providers have only 25% of the total market share, he says, meaning there’s plenty of room to grow.

In an interview, Fernandez is solicitous, self-effacing and relaxed — the antithesis of the driven entrepreneur. “My doctor will tell you that I internalize it,” he smiles. And, he adds, “My personal life has suffered.” A father of five, he shows off a picture of his young son, whom he brought to a business meeting. He loved it when the youngster asked, “What is selling short?” The ringtone on his cell phone is a quack — programmed by one of his children. But the beaming father also is thrice divorced.

Last year, Fernandez’s high school invited him to give the school commencement address at St. Patrick’s Cathedral. He says he usually refuses speech-making but made an exception. “I think it’s good for (students) to see that a guy of mediocre intelligence can get ahead. I’m not that smart, and I made my mistakes, and I almost went broke once, and I had to move in with my parents and I still pushed ahead.” While there, he also came clean to Moroney, who’s now retired, about his ulterior motive for attending the philharmonic. Did any of Moroney’s intended enrichment stick? Fernandez smiles. “After listening to these things for four years, I do like classical music today.”

Healthcare System Rx

“If I had a solution as to what ails the healthcare system in the U.S., I would be the next president — oops! I can’t be, as I was not born here.”

So says (actually, e-mails) Mike Fernandez. But press him for a cure, and he has a few ideas. First, as a private-market guy, he’s not in favor of universal government insurance. “The system obviously is not working right,” he says, but he also notes the long waits in Canada for an MRI, even for tumor cases (a median of 10 weeks, according to the Fraser Institute, an independent research organization). “Our system is still a very good one.”

He favors national reinsurance to cover insurers for customers’ catastrophic conditions. He argues that insurance is so expensive because 20% of cases generate 80% of costs. This pushes up premiums, leading the young and healthy to skip coverage, which in turn leads to the risk pool being distorted by too many ill and old. If government reinsured for the expensive minority of cases, everyday health insurance would drop in cost, leading more healthy people to purchase it and therefore spreading the risk. As a bonus, insurers could concentrate on preventive care, further lowering costs.

One other thought. Even now, “very few go untreated.” Those without insurance may suffer through long waits at a public hospital, but they receive care. Unfortunately, the cost is passed on to taxpayers and insurance-covered patients. “There is a financing mechanism in place to take care of the uninsured, but it’s all screwed up.”