The behavioral health sector has experienced significant M&A activity in 2025, fueled by growing investor interest and heightened demand for services. Having worked with numerous behavioral health operators across various M&A transactions, I've seen firsthand how success in this space requires far more than standard due diligence. From complex reimbursement structures to specialized clinical considerations, the details can make or break both the deal itself and the long-term integration.
Whether you're considering an exit strategy or evaluating a new acquisition, preparing for due diligence can dramatically increase the odds of a smooth transaction. Many of the issues we'll cover can be addressed before a sale or purchase process begins, allowing sellers to position themselves more favorably and buyers to make informed, confident decisions. What follows is a deep dive into the most critical components of behavioral health due diligence, expanded to capture the full detail that this sector demands.
Financial Considerations
The financial review is often the first stop in due diligence, but in behavioral health, it carries more weight than just verifying profit margins. Revenue cycles, payor mix, and cash conversion timelines all reveal how well an organization can translate care into sustainable growth. Looking beneath the topline numbers ensures that both parties understand the true financial dynamics at play and the potential risks hiding within the balance sheet.
Key areas of focus include:
Payor mix stability. Evaluate the composition of revenue across commercial insurance, Medicaid, Medicare, and cash-pay. Overreliance on a single payor type can leave a facility vulnerable to policy shifts or contract renegotiations.
Revenue recognition patterns. Examine timing differences between service delivery and cash collection. Behavioral health facilities often face 60–120 day collection cycles, making timing analysis critical.
Revenue per patient day. Review revenue by program level and payor to identify where margins are compressing or expanding.
Seasonality. Look for patterns tied to deductible resets, school-year cycles, or holiday periods, which can influence census and revenue.
Cash conversion cycle. Track the time from patient admission through pre-authorization delays, billing, and reimbursement. This reveals whether your business can reliably turn services into cash.
Working capital requirements. Review AR aging, bad debt reserves, and seasonal cash flow fluctuations to anticipate capital needs.
Capital expenditures. Distinguish between maintenance capex (typically 2–4% of revenue) and growth capex tied to expansion. This helps assess both sustainability and investment potential.
From a transaction advisor's lens, these insights drive valuation support, working-capital targets, and purchase price mechanics, and they inform debt capacity and covenant design post-close. In short, the numbers shape both price and the path to realizing it.
Regulatory Compliance Audit
Compliance is the bedrock of a behavioral health operation. Unlike some industries where minor missteps can be corrected quietly, regulatory failures here often have immediate and public consequences. Fines, license suspensions, or reputational damage can unravel years of progress. That's why a comprehensive compliance audit is non-negotiable: It assures that a behavioral health organization is not just meeting today's standards but also prepared for tomorrow's regulatory shifts.
Critical review points include:
Licensure. Confirm valid and current licensure for all levels of care, noting any restrictions, probationary periods, or historical lapses.
DEA registration. For facilities offering medication-assisted treatment, verify that protocols around substances such as buprenorphine and methadone meet both federal DEA and state-specific standards.
Accreditations. Review Joint Commission, CARF, and LegitScript statuses, paying attention to citations, corrective action plans, and timelines for resolution.
Privacy protections. Confirm HIPAA and state-specific compliance. Privacy breaches carry both legal and reputational risks.
Telehealth compliance. As virtual care expands, ensure alignment with evolving telehealth regulations. Non-compliance here is increasingly scrutinized.
Investigations. Check for pending or historical inquiries from CMS or state health departments that could impact operations.
M&A advisors help behavioral health organizations frame their compliance profile as a strength in the sale process. A clean compliance record allows for streamlined diligence and keeps negotiations focused on value. Where there are gaps, we work with management to address issues early or design transaction structures — such as tailored representations, escrow reserves, or specific closing conditions — that protect both sides without putting the deal at risk.
Clinical Outcomes
Clinical outcomes provide a window into the quality and effectiveness of behavioral health care being delivered. For prospective buyers, outcomes are not just clinical measures but business indicators that affect reimbursement, reputation, and long-term viability. Evaluating them in context helps distinguish between facilities that achieve true patient improvement and those that simply manage census numbers.
Key areas include:
Program-specific performance. Break down completion rates by program type (inpatient, outpatient, intensive outpatient (IOP), detox). Blended averages often conceal underperforming segments.
Readmission analysis. High readmission rates may suggest inadequate aftercare, premature discharges, or clinical shortcomings. Root cause analysis helps distinguish between clinical versus operational drivers.
Benchmarking. Compare outcomes with industry standards set by SAMHSA or NIDA. This provides context for performance and improvement opportunities.
When an M&A firm like mine (VERTESS) works with sellers, we emphasize that strong clinical outcomes do more than demonstrate quality of care. They directly support valuation. Solid outcome data strengthens quality-of-earnings analyses, positions the organization favorably in payor discussions, and highlights programs that deserve continued investment. By framing outcomes this way, we help sellers show buyers not just where the business is today, but where future growth and returns can be realized.
Payor Relationship Analysis
No two payor relationships are alike, and in behavioral health, these relationships often determine financial stability. From contract terms to denial rates, payors hold significant influence over how predictable and sustainable revenue streams will be. Diligence in this area uncovers whether the organization has built trust with its payors or if challenges could undermine growth.
Essential review items include:
Authorization approval rates. Examine approval rates by individual payor. Significant differences between insurers can reveal relationship challenges.
Claims management. Look at denial patterns, denial reasons, and appeal success rates. These metrics reveal both billing accuracy and the quality of documentation.
Contract terms. Assess reimbursement rates, renewal timelines, rate-reduction clauses, and exclusivity provisions that could affect future revenue.
Balance of in- and out-of-network billing. Overreliance on out-of-network arrangements may boost revenue short-term but creates long-term risk as policies shift.
Concentration risk. Flag situations where a single payor drives a disproportionate share of revenue.
For buyers and sellers, this analysis anchors revenue durability and shapes renegotiation strategies. It also signals when to employ earnouts or other downside protections, so the deal's economics reflect real contract risk.
Staffing Considerations
Behind every behavioral health facility are the people who deliver care. Unlike many industries, staffing in this sector directly shapes both compliance and clinical outcomes. High turnover, stretched ratios, or insufficient training can ripple outward, eroding the likes of quality, patient satisfaction, and financial performance. That's why staffing diligence is not just about numbers on a chart but about evaluating the culture and systems that support the workforce.
Key considerations include:
Staffing ratios. Compare clinician-to-patient ratios with ASAM and other standards. Ratios directly impact quality and safety.
Turnover analysis. High turnover suggests cultural or compensation problems, driving up costs and reducing consistency of care.
Clinical supervision. Supervisors must meet licensing requirements and maintain continuing education. Effective supervision also drives staff retention.
Credentialing. Ensure all providers are properly credentialed with both regulators and payors.
Specialized training. Review programs for co-occurring disorders, which are prevalent in behavioral health and require advanced expertise.
For sellers, staffing reviews highlight strengths and gaps that buyers will scrutinize. Addressing issues in advance, whether in recruitment, supervision, or compensation, helps position the organization as stable, compliant, and ready to scale after the transaction.
Census & Referral Sources
A healthy census and diverse referral base are among the clearest signals of operational strength for a behavioral health organization. Unlike financial statements, which reflect the past, census data and referral networks point directly to the future. They reveal whether the organization can maintain its patient flow consistently, or whether it is vulnerable to sudden drops when a key referral source dries up.
Important checkpoints include:
Census performance. A rolling 36-month census review reveals trends beyond seasonal fluctuations. Pay close attention to occupancy consistency, average daily census, and utilization by service line.
Referral source diversification. Reliance on any single source for more than ~15% of admissions creates risk. Common vulnerabilities include dependence on one hospital, physician group, or marketing vendor.
Length of stay. Analyze by payor, acuity, and treatment modality to uncover optimization opportunities.
Waitlist accuracy. Verify waitlist data and conversion rates to confirm whether demand is genuine or inflated.
Risk mitigation. Assess geographic diversity of referrals and verify that marketing practices avoid "patient brokering" violations.
From a seller's perspective, census and referral data provide the evidence buyers need to underwrite growth. Demonstrating consistent trends and diversified sources strengthens the valuation case and gives buyers confidence in near-term market development.
Technology & Data Systems
Technology in behavioral health is no longer just about convenience. It's a backbone for compliance, efficiency, and patient care. Facilities are under pressure to track outcomes, manage privacy concerns, and streamline operations in ways that were not expected a decade ago. The right systems can transform an organization's ability to grow and compete, while outdated or poorly integrated platforms can create hidden costs and compliance risks.
Critical areas include:
EHR functionality. Systems should support behavioral health-specific workflows, including ASAM assessments, group therapy notes, and individualized treatment planning.
Outcomes tracking. Real-time reporting and data accuracy are vital for decision-making and demonstrating value to payors.
Interoperability. Integration with payor platforms streamlines billing, authorizations, and data exchange.
Privacy and security. Given the sensitivity of behavioral health records, strong security protocols are non-negotiable.
From a deal standpoint, demonstrating tech readiness helps sellers set realistic integration timelines, clarify capital expenditure needs, and address cybersecurity representations, thereby reducing buyer concerns and helping prevent surprises after closing.
Additional Strategic Considerations
Even the strongest operations can stumble if broader strategic factors are overlooked. Reputation in the community, positioning against competitors, and compliance with local regulations all play subtle but powerful roles in determining long-term success. Due diligence that ignores these elements risks missing deal-breakers hiding in plain sight.
Key items include:
Reputation. Online reviews, litigation history, and media coverage can reveal patient satisfaction trends or ethical issues.
Market position. Assess local competition and demand forecasts to understand growth potential and sustainability.
Real estate and zoning. Confirm that treatment facilities, group homes, and sober living residences comply with local zoning ordinances, which can vary significantly.
Addressing these factors early reduces surprises in confirmatory diligence and keeps the path to a transaction's close — and the post-close value-creation plan — clean and credible.
Integrating Excellence in Behavioral Health M&A Due Diligence
Behavioral health transactions require diligence that goes far deeper than a standard healthcare checklist. From financials and compliance to outcomes and staffing, each area is nuanced and interconnected. Expanding the scope of review to cover every one of these domains provides a full picture of organizational health.
At VERTESS, our specialized approach to behavioral health transactions and guiding clients through due diligence helps ensure that every component receives appropriate attention and analysis. With the changing landscape within behavioral health, it's important to stay current with regular changes and take the necessary time to review each opportunity carefully.
Connor Cruse, CM&AA
As a Managing Director at VERTESS, I advise founders, executives, and investors on mergers and acquisitions (M&A) within healthcare services, with a focus on Behavioral Health, Mental Health, Addiction Treatment, and Outpatient Services. I guide clients through the entire transaction lifecycle, from initial valuation and positioning to buyer outreach, diligence, and final negotiation, whether they’re preparing for a strategic exit, recapitalization, or acquisition.
My experience spans both sell-side and buy-side mandates, representing operators across the U.S., from specialized behavioral health providers to multi-site medical groups. My work is grounded in deep financial analysis, market intelligence, and a hands-on approach to every deal.
Prior to VERTESS, I held senior advisory roles at Iconic and Coast Group, where I built scalable M&A processes and closed complex transactions involving healthcare businesses and associated real estate. I also led business development initiatives, driving a strong pipeline of mandates and lasting relationships with private equity firms, strategics, and founders. I’m passionate about helping healthcare leaders unlock and realize the value they’ve built, whether that means a full exit or bringing on a capital partner. Every transaction is unique, and I strive to guide clients with clarity, strategy, and trust.
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If you're planning to sell your healthcare business, there's a good chance that the price you agree to at the outset won't be the price you see at closing. According to a 2021 study by the American Bar Association, a staggering 82% of private company mergers and acquisitions (M&A) transactions included a pre-close price change. In other words, repricing isn't usually the exception. It's generally the rule.
As a healthcare M&A advisor, I've seen firsthand how repricing can derail deal value, create tension between buyers and sellers, and sometimes even cause a transaction to fall apart altogether.
The good news? While not all repricing can be prevented, much of it can be anticipated. In many cases, it can be avoided.
Let's look at why repricing happens, what it typically means for sellers, and the steps you can take to minimize the risk when it comes time to sell your healthcare business.
Why So Many Healthcare Deals Get Repriced
Repricing happens for a number of reasons, and not all of them are within the seller's control. However, understanding the most common causes is a crucial step toward managing the risk.
One of the biggest drivers is working capital. Many healthcare sellers underestimate how large a working capital adjustment can be, especially if they haven't taken time to benchmark the right working capital target based on normalized historical trends. Buyers typically want enough working capital left in the business to keep operations running following the close of a transaction, and if their calculation differs from the seller's, the difference gets priced in.
Another frequent reason for repricing is a change in the business's performance during the deal process. Factors like a slower quarter, an unexpected loss of a key contract, higher-than-expected staff turnover, or supply chain disruption can all trigger concern and prompt buyers to reassess valuation.
Then there are the unavoidable curveballs, such as due diligence findings, financing delays, or changes in regulatory or market conditions, that will shift the buyer's perception of risk. If the deal takes months to close, even macroeconomic developments, like a rise in interest rates, can compel a buyer to revisit pricing.
What Repricing Actually Looks Like
Repricing doesn't always mean a straight drop in purchase price, though that's certainly one possible outcome. More often, it changes the structure of the deal itself.
In many cases, the buyer will still offer the original headline value, but with different terms. A higher percentage of the purchase price may be pushed into an earnout, making it contingent on future performance. Alternatively, the mix of consideration might change — for example, shifting from a cash-heavy deal to one that includes stock and/or deferred payments.
Sometimes, repricing involves renegotiating non-economic terms as well, such as the seller's post-close obligations. In some situations, the deal gets called off entirely, especially if the repricing gap is too wide or trust between the parties erodes.
The reality is that repricing tends to benefit the buyer more than the seller. Once you're under a letter of intent (LOI), your options narrow. Sellers often feel pressure to accept changes rather than start over, especially after months of emotional and financial investment, and the fear of going through the process again only to face more repricing or a lower offer.
What Sellers Can Do to Avoid Repricing
While you can't control market conditions or a buyer's financing, you can take proactive steps to reduce the likelihood of repricing and strengthen your negotiating position if it does come up. Here are some of the steps I recommend sellers take who want to protect their deal value:
Conduct thorough sell-side due diligence. Don't wait for the buyer to uncover issues. Conduct your own diligence before going to market so you can spot — and then resolve — problems early.
Develop a robust, credible CIM. A well-crafted confidential information memorandum (CIM) that tells a professional, positive, and transparent story about your business sets the tone for the deal and helps prevent misunderstandings as the transaction proceeds.
Minimize the signing-to-closing gap. The longer the window between signing an LOI and closing the deal, the more opportunity there is for repricing events to emerge.
Pre-negotiate critical adjustments. Where possible, address working capital targets, earnout parameters, and other key terms upfront in the LOI.
Consider locking in pricing. Fixed purchase price mechanisms can limit exposure to future adjustments, though they're not always feasible. Work with a mergers and acquisitions advisory firm to understand and properly weigh the pros and cons.
Provide an independent quality of earnings (QofE). A sell-side QofE report can increase buyer confidence, accelerate diligence, and often help avoid last-minute surprises that may lead to repricing.
Ultimately, the best defense against repricing is preparation as well as collaboration with experienced healthcare M&A advisors. Buyers will always look for ways to de-risk their investment. They would be foolish not to. As a seller, your job is to anticipate those concerns, address them proactively, and enter the process with clear, defensible numbers and a compelling narrative that discourages any deal-jeopardizing revisions.
Repricing Is Common in Healthcare M&A, But It Doesn't Need to Be Inevitable
It's easy to assume that repricing is simply part of the healthcare M&A process. As the statistic mentioned at the beginning of this column shows, it's certainly prevalent. But that doesn't mean it's unavoidable. With the right preparation and guidance, sellers can enter negotiations with confidence, set better expectations, and increase the odds of closing at the price they and their business deserves.
If you are planning to sell your healthcare business and want to steer clear of the pitfalls of repricing, reach out. I help sellers navigate every stage of the transaction, from due diligence through close, with a sharp focus on preserving value and, when the opportunity allows, maximizing it. Let's discuss how to make your exit smooth, successful, and free from surprises that can be prevented.
Gene Quigley
For over 20 years I have served as a commercial growth executive in several PE-backed and public healthcare companies such as Schering-Plough, Bayer, CCS Medical, Byram Healthcare, Numotion, and most recently as the Chief Revenue Officer at Home Care Delivered. As an operator, I have dedicated my career to driving value creation through exponential revenue and profit growth, while also building cultures that empower people to thrive in competitive environments. My passion for creating deals has helped many companies’ platform and scale with highly successful Mergers and Acquisitions.
At VERTESS, I am a Managing Director with extensive expertise in HME/DME, Diagnostics, and Medical Devices within the US and international marketplace, where I bring hands on experience and knowledge for the business owners I am privileged to represent.
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For solo practice owners, whether you're a primary care physician, dentist, optometrist, dermatologist, or veterinarian, timing is everything when it comes to selling your practice. One of the most common mistakes doctors make is waiting until they're ready to retire before considering a sale. Unfortunately, by the time most doctors are emotionally and mentally ready to exit, they're often not prepared for the reality that to receive maximum value for their practice, they will still need to continue working for several years after the sale.
When private equity firms and strategic buyers acquire a practice, they are not just purchasing a patient list or a few exam rooms. They are acquiring a stream of recurring revenue. To pay a strong multiple on earnings, a buyer needs to feel confident that the business will at least maintain its current cash flow or preferably continue growing. That confidence disappears the moment a buyer learns the solo doctor plans to retire shortly after the sale. Without a solid transition plan, the buyer's biggest fear usually becomes reality: patients leave with their doctor.
Patients often have strong emotional connections with their healthcare providers. When a solo doctor leaves, especially after decades of building trust and rapport, most patients will follow. This is especially true in primary care, optometry, dermatology, and veterinary care, where the relationship is highly personal and longstanding. If a buyer sees that the doctor is stepping away immediately, they will anticipate significant patient attrition and lower their offer, sometimes drastically. In these cases, the deal might be reduced to a simple asset or goodwill acquisition, capturing only a fraction of the practice's true value.
There are exceptions, of course. Dental practices tend to experience less patient churn post-transition, largely because patients often build long-term relationships with hygienists, not just the dentist. However, even in dentistry, buyers usually prefer the seller to remain for one to two years after the sale to introduce the new dentist(s), maintain production levels, and support continuity of care. That transition period, even in more resilient specialties, still plays a major role in deal success and valuation.
Timing Is Key When Selling a Medical Practice Solo
When is the best time for solo doctors to sell their medical practice? Selling three to five years before you plan to retire allows buyers time to bring in a replacement provider(s) who can be slowly integrated into the practice. This transition phase enables patients to get to know the new doctor while the original doctor is still present, which significantly improves patient retention. A gradual handoff allows the buyer to feel more confident about maintaining revenue, and therefore they are more willing to pay a premium for the business.
From a deal structure standpoint, most transactions are not 100% cash at closing. Sellers typically receive around 60% to 70% of the total purchase price upfront, with the remainder paid through an earnout or in the form of equity rolled into the new entity. Additionally, the seller usually stays on post-close as an employee for several years, receiving a market-rate salary. These terms can vary significantly based on specialty, geography, deal size, and negotiation leverage.
All of these point to the importance of working with a knowledgeable mergers and acquisitions advisory firm.
The Value of a Healthcare M&A Advisor
An experienced healthcare M&A advisor can help you position your practice to maximize value, run a competitive sales process to attract multiple buyers, and negotiate favorable deal terms. The advisor can also offer invaluable guidance on what is considered standard, favorable, or non-favorable in today's market. Beyond the financials, an advisor serves as a critical sounding board, helping remove emotion from what is often one of the biggest and most personal financial transactions of a doctor's life.
Unfortunately, not a week goes by without my M&A advisory firm, VERTESS, having a difficult conversation with a doctor who waited too long. These are seasoned professionals who are ready to retire and assume their years of dedication will command top dollar, only to be met with the reality that their practice, with no plan for transition, has lost significant value. At that point, they're often left with two options: continue working for a few more years to maintain value or accept a low offer that reflects only the value of their equipment and charts.
The reality is that most solo doctors don't think about the sale of their practice early enough. It's not something that typically crosses their minds until retirement is just around the corner, but by then, the leverage is gone. The good news is that with proper planning and the right team, doctors can time their exit to maximize both financial return and personal peace of mind.
If you're within five years of retirement, now is the time to start exploring your options. Preparing early gives you more flexibility, stronger negotiating power, and a significantly better shot at walking away with the value you deserve for the business you spent your career building.
At VERTESS, we specialize in helping physicians sell their medical practices with strategy and confidence. Whether you are exploring your options or ready to take the next step, our team is here to help you protect your legacy and maximize value. Start the conversation today. Your future deserves a plan.
Kevin Maahs, CM&AA
As a seasoned entrepreneur with 12 years of experience owning and operating a durable medical equipment company specializing in urological and power mobility, I have developed a deep understanding of the industry and the complexities of running a successful business. In 2021, I achieved a significant milestone by successfully selling my business, a process facilitated by the expertise and guidance of Vertess.
Navigating the sale of a company can be one of the most challenging and emotional journeys for any business owner. However, with Vertess’ unwavering dedication, meticulous attention to detail, and seamless process, my experience transitioned from stressful to highly rewarding. This transformative experience ignited my passion for helping other entrepreneurs achieve their goals and maximize the value of their businesses.
Today, I am excited to leverage my firsthand experience and insights to support business owners in navigating the complexities of selling their companies, helping them turn what can be a daunting process into a fulfilling and successful endeavor.
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What once set a successful medical practice apart — clinical reputation, patient loyalty, and operational efficiency, among other qualities — is no longer enough to guarantee long-term success. Today, the likes of size, scale, and strategic positioning matter more than ever.
Whether a practice is operating as a standalone entity or includes an integrated network of outpatient clinics and ambulatory surgery centers (ASCs), pressures in the market are mounting. Hospitals and health systems continue to acquire practices. Private equity is increasingly active. Payers are consolidating and negotiating harder. Costs — particularly for labor and supplies — continue to rise. The list of challenges grows, and also includes physician and staff shortages, increasing regulation, revenue volatility, persistent competition, and the emergence of telemedicine providers and wearable technologies, according to IBISWorld.
Amid these trends and barriers to success, many physician practice owners are asking the same question: Is now the right time to seek a strategic or financial partner?
Top Reasons Pushing Large Medical Practices Toward Partnership
Here are some of the top reasons why the answer is often yes.
1. Protecting market position
Across the country, hospitals and health systems, as well as private equity and large corporate platforms, are rapidly consolidating physician practices. For example, a Physicians Advocacy Institute and Avalere joint study found that nearly 60% of physician practices are now owned by hospitals, health systems, or corporate entities. Meanwhile, a 2025 JAMA Health Forum analysis similarly notes the fast-paced consolidation of practices by hospitals and private equity firms.
As these larger players expand, they often negotiate better contracts, invest more in marketing, and access referral pipelines that smaller, standalone practices may find difficult to compete with. A strategic or financial partner can give independent practices the scale and infrastructure needed to not only hold their ground but thrive in this increasingly consolidated landscape.
2. Accessing capital for expansion and strategic investments
Expanding a clinical footprint, acquiring complementary practices, building a new ASC, or investing in new technologies often requires capital beyond what most physician groups are comfortable investing personally. A partner can provide the financial resources to turn growth opportunities into reality and do so without exposing practice owners to excessive financial risk.
Beyond funding, partners may bring development expertise, operational support, data analytics, and supporting service lines that help practices better identify viable and profitable growth opportunities. The combination of capital and strategic support can empower practices to scale more successfully.
3. Strengthening payer contracting and revenue cycle management
Securing favorable payer contracts is increasingly challenging for independent groups. Larger organizations typically have better leverage and scale, more experience negotiating increasingly complex terms, and the analytics to back up rate and access requests. Partnering with an organization that has these capabilities can open doors to more advantageous reimbursement, improved contract terms, and access to payers that may have been previously out of reach. For practices expanding into new markets or adding service lines and/or facilities (e.g., ASCs), this type of contracting strength can have a substantial impact on financial performance.
In addition, as payers move toward value-based reimbursement and downside risk arrangements (e.g., accountable care organizations, capitated contracts, bundled payments), many independent practices lack the infrastructure, data analytics, and care coordination resources to participate effectively. A strategic partner can offer population health tools, risk stratification models, and care management support, while also helping practices navigate complex reimbursement structures, thus enabling them to stay competitive in an evolving payment landscape.
Alongside payer contracting comes the critical need for strong revenue cycle management. But many practices struggle with the intricacies of coding, billing, and collections, often relying on outdated systems or overburdened staff. This can lead to increases in claim rejections, denials, and delayed or lost payments. A strategic partner may be in a position to provide centralized revenue cycle operations that lead to improvements in cash flow, denials and appeals, and compliance. These partners often offer advanced analytics that further help identify trends and pinpoint areas for improvement. The result is a more efficient and predictable revenue stream that supports both short-term stability and long-term planning and investments.
4. Recruiting and retaining talent
Attracting and retaining top talent — both physician and staff — is one of the most urgent and difficult challenges facing practices today. From wage inflation to burnout, maintaining a high-performing team requires more resources than ever. Strategic partners can provide human resources (HR) support, competitive benefits packages, and workforce development programs that appeal to today’s healthcare professionals. An infusion of capital can also help practices recruit new physicians and fill critical staffing gaps. In addition, the right partner can support the development of a sustainable staffing model that promotes growth and quality while helping to decrease turnover and burnout across clinical and administrative roles.
5. Reducing administrative burden on physicians
As practices grow, so do the administrative demands on physician owners and clinical leaders. Managing everything from payroll to compliance to IT infrastructure can distract clinicians from their core clinical responsibilities and accelerate burnout. A strategic partner can assume some or much of this operational burden and introduce the likes of standardized systems, management teams, and support services that improve efficiency.
It is also important to note that some investments aimed at reducing physician workloads accomplish much more. Take digital health, for example, which one could argue is no longer an optional offering for large practices. From telemedicine to patient engagement platforms, practices are expected to provide their patients — and physicians — with tech-enabled access, convenience, and transparency. However, implementing digital health tools is often expensive and time-consuming. A partner can accelerate a practice's adoption of digital health solutions by providing existing infrastructure, capital, and technical support, thereby helping practices enhance patient and physician experience, streamline operations, and better future-proof the business.
6. Improving supply chain efficiency
Rising costs of medical supplies and equipment, along with ongoing and/or the potential for supply chain disruptions, make procurement more complex, expensive, and time-consuming for independent practices. A partner with purchasing scale can offer access to preferred pricing, often through group purchasing organizations (GPOs), stronger vendor relationships, more efficient procurement, and streamlined logistics. This can not only help reduce costs but also better ensure more reliable access to essential supplies. In turn, practices can improve margins and maintain consistent care delivery without the stress of supply shortages or inflated prices.
7. Supporting strategic growth and long-term planning
Many large practices have a vision for growth but lack the bandwidth or expertise to turn that vision into a fully developed and then executed plan. Strategic partners often bring experience in areas including market analysis, facility planning, and multi-site expansion, helping practices map out and then execute viable long-term growth strategies.
Whether expanding into new regions, adding service lines, or building new facilities, a partner can provide the guidance, capital, manpower, and operational support to move from idea to execution.
With consolidation and commoditization affecting many specialties, marketing, branding, and differentiation have become increasingly important. A partner can provide expertise, digital strategy, and data-driven outreach to expand awareness of a practice and its physicians and services, build patient loyalty and referrals, and further position the organization as a market leader. This is especially valuable in more competitive urban and suburban regions.
8. Creating financial security and future options
For many physician-owners, a partnership offers a way to realize some of the value they have built while remaining actively involved in their practice. A partial liquidity event can provide financial diversification, reduce personal risk, and support retirement planning. Meanwhile, practice owners can often continue practicing, leading, and participating in upside through ongoing equity or performance-based incentives. This model offers flexibility: the ability to "de-risk" without fully exiting, while aligning with a partner that can enhance the value of the owners' remaining equity.
9. Enhancing data security and compliance
With rising cybersecurity threats and increased HIPAA enforcement, practices must invest in secure IT infrastructure and strong compliance systems. As noted, these investments — and their implementation — can be complex and costly. A strategic partner can offer financial and personnel support, along with access to advanced technology, enhanced cybersecurity protocols, compliance training, and auditing tools that are often out of reach for independent groups. This helps reduce risk while strengthening trust among payers, patients, and partners.
10. Preparing for future transitions and succession
As partners approach retirement or transition out of leadership roles, succession becomes a critical issue. Without a concrete plan, practices may face instability or loss of direction that can quickly weigh on profitability, staffing, and patient care and retention. A strategic partner can help formalize governance, create pathways for leadership transition, and better ensure continuity of care and operations. This not only supports a smoother transition but also makes the practice more attractive to future physician recruits who will likely want to see a stable path forward.
Looking Ahead: Achieving Strategic Alignment in a Shifting Medical Practice Market
In today's environment, staying competitive often requires more for large medical practices than continuing to go it alone. Partnering with the right organization does not mean giving up complete control. Instead, it can offer a chance to grow stronger, more stable, and more sustainable while preserving the values and services that have made the practice successful.
If your practice is considering a strategic or financial partner, VERTESS can help. Our experienced managing directors work exclusively with healthcare organizations and bring the insight and support needed to prepare for a sale, help increase value, attract the right potential partners, and negotiate a successful transaction outcome. Reach out today — we are here to help you explore what comes next.
J. Blake Peart, RRT, CM&AA
I have had the opportunity of an extensive and diverse career in healthcare for over twenty years. In the past ten years, I have served as CEO for multiple hospitals of Fortune 500 companies and CEO for several large Ambulatory Surgery Centers. In addition, my operations and business development knowledge has allowed me to experience the entire M&A process from start to finish focusing primarily on private equity transactions. My history as both a CEO and clinician provides a unique perspective based on years of experience and empathy when working with business owners seeking M&A advice. My expertise is in Ambulatory Surgery Centers, Physician Practices, and independent hospital businesses. I am here to support healthcare business owners who select the M&A direction as one who has walked in their shoes. I know that every transaction is unique and tailored to a seller’s need in getting the best deal and providing a positive experience throughout the entire process.
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Over the last several years, the med spa sector has grown rapidly, powered in part by surging demand for weight loss services — particularly GLP-1 medications. For a period, medical weight loss was a primary driver of rising valuations and transaction volume. Many buyers saw GLP-1-based programs as a strong indicator of client engagement and revenue growth.
But the market has shifted.
Weight loss services are still valuable, and buyers continue to seek them. However, they no longer carry the "weight" they once did, and they are no longer the defining feature of a premium acquisition. Today's buyers are evaluating the entire business model, brand, infrastructure, and a lot more before making offers. Valuations are still strong, but they are increasingly reserved for med spas with broader foundations of success.
Med Spa Industry Snapshot
According to IBISWorld, the U.S. health and wellness spa market experienced a compound annual growth rate (CAGR) of 8% from 2020 to 2025. The average profit margin in the space is nearly 9%, which is fueled by premium services, recurring clients, and efficient business models, as we will discuss further below. Research suggests that 85% of med spa clients are women, primarily ages 35 to 54. They are increasingly committed to regular visits.
At the same time, IBISWorld notes that men represent a growing opportunity, with approximately two out of every five med spas now offering targeted packages for this expanding demographic. Seniors also continue to represent a high-value client segment, particularly for wellness-focused and age-defying treatments.
10 Strategic Priorities for a High-Value Med Spa Exit
What should med spas prioritize today, whether aiming to sell soon or building long-term value to stay competitive and maximize their future attractiveness to buyers? Let's look at 10 areas of focus.
1. Multiple locations
Multi-location operators tell an important story to prospective buyers. They benefit from economies of scale, shared staff, centralized systems, and bulk purchasing power. Buyers see these businesses as lower risk, easier to replicate, and better positioned for regional or national expansion. Staff recruitment is also easier for multi-site operators; job seekers are more confident in employers with proven history and infrastructure as well as a visible footprint.
In addition, once ownership and leadership have successfully navigated the challenges of opening a second location, expanding further often becomes more efficient and less daunting. The experience gained, ranging from site selection and staffing to replicating operational systems and marketing strategies, helps streamline future openings. Lessons learned from the initial expansion help reduce or avoid costly missteps and allow for more confident, scalable growth.
2. Diversification of services
Single-service med spas, or those with just a few services — no matter how profitable — face challenges in today's market. Buyers now expect full-line offerings that appeal to a range of clients and their needs.
In no particular order, the most valuable med spa businesses offer most if not all of:
Neurotoxins (e.g., Botox, Daxxify)
Dermal fillers and advanced injectables
Laser skin rejuvenation and resurfacing
Hair removal and restoration
Body contouring and fat reduction
Hormone therapy and hormone replacement therapy (HRT) monitoring
IV hydration and vitamin drips
Medical weight loss
Skincare product retail
Med spas must begin preparing for the next wave of wellness treatments, with peptides likely to take a leading role. These small proteins act as signals in the body, helping to boost collagen, burn fat, build muscle, and support healing. While often delivered through injections, peptides are also available in topical creams and oral supplements. Med spas are increasingly using them to address a wide range of client goals, including smoother skin, fuller hair, weight loss, better sleep, hormone balance, and improved energy. Popular peptides (e.g., CJC-1295, BPC-157, GHK-Cu) are becoming integral components of personalized plans designed to enhance both appearance and overall well-being. As more clients seek treatments that go beyond aesthetics to support full-body health, med spas that integrate peptide therapy will be better positioned to meet this rising demand.
Another important consideration is that med spa clients are gravitating toward "less is more." That means fewer visits, longer-lasting results, and little to no recovery time. That also means med spas need to stay up to date on the latest injectables, skin treatments, and fat reduction technologies. Non-invasive therapies are in especially high demand, and products must be regularly updated to reflect new innovations.
3. Investment in technology and automation
Clients turn to med spas not only for results, but for a sense of ease, confidence, and personalized care. That experience begins well before treatment. Top-performing med spas deliver on this expectation by using digital platforms for scheduling, intake, consents, communication, and payment, making it easy for their clients to learn about, access, and receive services. Online calendars that span multiple locations offer added flexibility, reinforcing the sense of convenience and control clients are seeking.
Beyond improving the client journey, the use of technology to achieve greater automation helps reduce administrative workload, aids in controlling staffing costs, and supports more efficient operations that translate to increased profitability.
4. Recurring business and retention strategies
Most clients visit their med spas of choice monthly, or at least every few months. Successful businesses take steps to maximize this regularity through the likes of memberships, loyalty programs, and bundled packages. Communication tools such as:
E-newsletters
Text message (SMS) reminders
Exclusive event invitations
Targeted promotions
… all help drive rebooking and reengage inactive clients. These mechanisms also support cross-selling: for example, a client enrolled in a weight loss program may be introduced to contouring, skin tightening, or hormone optimization services. Clients should always be aware of new offerings, especially those that support their existing goals or encourage them to think about new objectives.
5. Website, SEO, and digital advertising
A med spa's digital front door can matter as much as the physical one. A well-structured, mobile-friendly website with online booking, client education, and visible testimonials can significantly improve conversion. Search engine optimization (SEO) and pay-per-click campaigns can help capture demand and drive new leads. Websites should be updated frequently to reflect new services, products, trends like peptides and the next wave of GLP-1 medications, as well as testimonials supported by photos and videos.
6. Social media presence
Platforms like Instagram, TikTok, YouTube — and Facebook, which remains relevant for certain client segments — continue to shape client expectations and serve as influential sources of information, inspiration, and business and service discovery. Many younger clients find their med spa provider on social media before visiting a website. There is a rising influx of clients in their 20s, driven by social media and shifting beauty norms. Spas must consistently post:
Client testimonials
Before-and-after photos
Treatment walkthroughs
Practitioner spotlights
Service-specific videos
Location tours
This content builds trust and inspires bookings. Many top-performing med spas are offering free or discounted services to influencers and local celebrities in exchange for social posts, a strategy shown to often yield a strong return.
7. Online reviews and reputation management
Prospective clients vet providers by reading reviews. A few negative posts can deter dozens of prospects. Strong med spas proactively solicit Google and Yelp reviews, monitor their profiles, and respond to feedback professionally. Tools that automate these requests and monitor platforms can help protect and elevate brand reputation without requiring significant manual labor.
8. Interior and exterior aesthetics
First impressions matter. Clients expect med spas to look and feel modern, clean, and upscale. Many high-performing locations resemble boutique hotels or ambulatory surgery centers. Design is not just cosmetic; it reflects a med spa's brand, quality, and safety standards. Every detail, from landscaping and signage to lighting and treatment room finishes, should consistently tell a story of professionalism, cleanliness, and comfort.
9. Physician partnerships and referral networks
In markets with physician referral potential, building those relationships can expand a med spa's client base, especially for services like hormone therapy, weight loss, or skin conditions that overlap with dermatology or internal medicine. Some med spas also bring physicians on board as medical directors or brand ambassadors. This relationship can lend credibility and ensure compliance with state-specific supervision rules.
10. Staff training and certifications
While a med spa's services may attract clients initially, it is the staff who often bring them back through engagement, skill, professionalism, and the quality of the relationships they build over time. Buyers look for teams with certifications in their specialty areas, ongoing training programs, and low turnover. Skilled staff enable more efficient and effective expansion of services and drive client retention. Training in cross-selling, such as suggesting skin tightening to weight loss patients, can significantly lift revenue per visit.
Additionally, having a licensed medical director (and clear clinical oversight protocols) is essential, particularly for GLP-1 prescriptions, hormone therapies, and emerging treatments like peptides.
Integrating Weight Loss into the Bigger Picture
Weight loss services, particularly GLP-1 programs, still drive med spa traffic and generate strong revenue. But today's best med spas treat these programs as part of a broader wellness journey. As clients lose weight, they need support in other areas:
Body sculpting to address loose skin
IV therapy and nutritional counseling to support metabolism
Hormone balancing for longer-term success
Skin rejuvenation to match new body confidence
Cross-selling these services increases client value and improves outcomes. Looking ahead, next-generation GLP-1s — both injectable and oral — as well as peptide-based therapies, are likely to drive further change. Med spas that stay informed, anticipate these developments, and are prepared to launch supporting programs both compliantly and competitively will continue to stand out.
A Positive Transaction Outlook for Med Spa Owners
The med spa sector remains highly attractive to strategic and financial buyers. Demand for self-care, aesthetics, and preventive health is not going away. But the nature of a "transaction-ready" med spa business has evolved.
Buyers of med spa are now looking for strong fundamentals, including scalable operations, diversified services, a loyal client base, committed staff, and strong digital infrastructure. They want a brand, not just a business.
At VERTESS, one of the leading healthcare mergers and acquisitions companies, we specialize in helping med spa owners evaluate their readiness for sale, identify opportunities to strengthen their market position, develop a business exit strategy, and execute successful transactions. Whether you are thinking about a transition this year or laying groundwork for the future, the right plan — and the right team — can make all the difference.
If you are a med spa owner considering a sale or just want to better understand your business's value, reach out. We're here to help you explore what is possible for your med spa.
Alan J. Hymowitz, CM&AA
During the past decade I have facilitated numerous, diverse M+A transactions in the pharmacy marketplace across the country, as well as providing strategic consultation to national pharmacies and similar organizations. Prior to becoming an M+A advisor, I was a “hands on” owner and manager in the pharmacy and home infusion healthcare marketplace for over 15 years, and successfully sold my pharmacy to a national company after growing and diversifying our income streams in a very competitive market. My specialties in the pharmacy and home infusion marketplace include long term care, retail pharmacy, specialty pharmacy, and home healthcare, and I have attained the URAC Accreditation and Specialty Pharmacy Consultant designations, in addition to other recognition. My educational background includes a Bachelor of Arts from Rutgers University and a Master of Arts from the John Jay College of Criminal Justice.
We can help you with more information on this and related topics. Contact us today!
By: David E. Coit, Jr., DBA, CVA, CVGA,CM&AA, CBEC, CAIM
You often hear about the sale of a healthcare company where the buyer paid the seller a price based on a "market multiple" of something, with that purchase price (or offer) typically based on a multiple of revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA), or adjusted EBITDA.
In this column, I will break down what market multiples represent.
Determining the Offer Price
Before we dive further into market multiples, it's important to acknowledge that when coming up with offers, buyers take a deep dive analysis of the past performance of a company of interest, then they estimate what synergies they bring to the table regarding the expected future performance of the company post-acquisition. Buyers typically use a discounted cash flow analysis to estimate the future value of the company. This process allows buyers to estimate the future after-tax cash flows that they’ll derive from the purchase, based on how much they pay for the company.
Converting the Offer Price to a Market Multiple
Once the buyer has an estimate of how much its willing to offer to buy a company, they convert that dollar amount into a market multiple of some performance measure of the company’s performance. For example, the buyer might convert the amount it wishes to offer into a multiple of the company’s annual revenue or adjusted EBITDA. However, seasoned buyers also look at what similar companies sold for in the past, based on the same market multiples. If there have been a number of recent merger and acquisition (M&A) transactions for similar companies where the purchase price was 5.0x to 5.5x adjusted EBITDA and 1.0x to 1.1x annual revenue, the buyer might amend its offer to fit within other recent M&A transactions.
Some buyers also look to see what larger public companies in the same sector are valued at. For example, a large publicly traded home care business might show an enterprise value of $2.13 billion, trailing 12-month revenue of $1.21 billion, and EBITDA of $128.0 million. That company would have a market multiple of 1.88x revenue or 17.82x EBITDA. Those market multiples would represent the top of the market in terms of valuations.
Most seasoned buyers have "rules of thumb" guidelines they follow for each sector, such as never making an offer in excess of 1.50x revenue or 7.0x EBITDA for a home care business unless there’s something very special about the target company. Other buyers might have a rule that they get fully paid back from the cash flow of the acquired company in five years or less.
There’s something to remember when looking at multiples of cash flow or EBITDA: The inverse of the multiple is an approximation of the buyer’s return on investment. So, a 5.0x multiple is equal to a 20.0% return on investment (i.e., 1 ÷ 5 = .20 or 20.0%). Similarly, a 7.0x multiple purchase price would provide the buyer with an approximate return on investment (ROI) of 14.28%. Most buyers are seeking +20.0% ROI on M&A transactions. As such, if a buyer makes an offer of 7.0x cash flow or EBITDA, it is expecting future cash flow or EBITDA to grow to fulfill the desire for a +20.0% ROI.
Income Taxes
Earlier I mentioned that buyers usually undertake a discounted cash flow analysis using after-tax cash flow or EBITDA to estimate the value of a target company. You might find it strange that they use after-tax dollars in their analysis even though many companies do not pay taxes. The reality is that income taxes must be paid by someone. If it’s not paid by the company, it’s paid by the owners of the company. Buyers want to determine their cash ROI after taxes.
Different Purchase Structures
Buyers can take advantage of structured purchases to offer a higher multiple and still retain their desired ROI. A seller note is a typical method of structuring a purchase where the future cash flows of the acquired company are used to pay a portion of the purchase pricing. A buyer may offer a 6.0x multiple of EBITDA purchase price but pay a 4.0x multiple of EBITDA at closing followed by a five-year seller note equal to a 2.0x multiple of EBITDA.
Similarly, the buyer may offer the seller an earnout based on the future performance of the acquired company. A buyer may offer a 6.0x with 4.0x at closing followed by a percentage of future EBITDA not to exceed 2.0x of the closing EBITDA.
Understanding Market Multiples
The concept of market multiples is a way of communicating value between buyers and sellers. A seller doesn’t sell based on multiples but rather based on real dollars. The same holds true for buyers. Buyers undertake great effort to estimate the value of target companies, specifically to them.
David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC, CAIM
I am a seasoned commercial and corporate finance professional with over 30 years of experience. As part of the VERTESS team, I provide clients with valuation, financial analysis, and consulting support. I have completed over 400 business valuations. Most of the valuation work I do at VERTESS is for healthcare companies such as behavioral healthcare, home healthcare, hospice care, substance use disorder treatment providers, physical therapy, physician practices, durable medical equipment companies, outpatient surgical centers, dental offices, and home sleep testing providers.
I hold certifications as a Certified Valuation Analyst (CVA), issued by the National Association of Certified Valuators and Analysts, Certified Value Growth Advisor (CVGA), issued by Corporate Value Metrics, Certified Merger & Acquisition Advisor (CM&AA), issued by the Alliance of Merger & Acquisition Advisors, and Certified Business Exit Consultant (CBEC), issued by Pinnacle Equity Solutions, and Certified Acquisition Integration Manager (CAIM), issued by Intista. Moreover, the topic of my doctoral dissertation was business valuation.
I earned a Doctorate in Business Administration from Walden University with a specialization in Corporate Finance (4.0 GPA), an MBA from Keller Graduate School of Management, and a BS in Economics from Northern Illinois University. I am a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.
Before joining VERTESS, I spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During my commercial finance career, I analyzed the financial condition of thousands of companies and successfully sold over $2 billion in corporate debt to institutional buyers.
I am a former adjunct professor with 15 years of experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.
I would like to invite interested parties to begin a dialogue on the topic of what defines "attractive markets" for providers in the intellectual and developmental disabilities (IDD) industry. To begin with, let's define a "market" as a state and a line of service. For example, operating group homes in Ohio would constitute a "market."
My intention in doing so is to share some thoughts about this important subject in order to elicit feedback from others. I am not interested in trying to tell you what are "good" or "bad" markets for investment. As I'll get to below, a good or bad market may and often will differ by provider. My interest here is to suggest a collaboration with others to capture everyone's best thoughts on the topic. I hope we can share insights and metrics that might help our community better understand the dynamics in place all over our country. I would very much like to see broad participation by interested parties. If this topic resonates with you, I have included my email at the end of the piece and would welcome your thoughts. If there is enough interest and engagement, I may create a LinkedIn group or similar resource to continue the conversation.
To get this conversation started, I am using this column to touch on a wide range of IDD industry topics, from some basics around defining terms and key metrics to discussion about more complex topics like marketing intelligence and dealmaking.
A Starting Point
I've created a table (Table A) with some key metrics on the IDD industry. To begin with, the total annual dollar spent in the IDD industry is approximately $80 billion. I've listed a breakdown by state in the table. The University of Kansas publishes a report every two years which includes this very helpful information. I've used their information for many years and included some data points here.
Should the total dollars spent per state be considered a good indicator of an attractive market? Perhaps a better question is: when does total annual dollar spend become a useful metric? Is the dollar amount spent per person a better metric? If someone is seeking to consolidate a market, might they consider the overall size, number of competitors, and leverage available through combinations as important factors?
I know that there are a number of buyers in the IDD industry that view markets with a small dollar amount of spend as a disqualifier for any transaction. This does not mean that there aren't wonderful companies and acquisition targets for the right buyer. There have been numerous cases in the field of healthcare mergers and acquisitions (M&A) where a company does the hard work of consolidating a small market, creating a dominant market position, and selling it to a large provider.
Administrative Cost Per State
There is a data point that I've always been curious about, and that's the administrative cost per state. How much of the total spend goes to providers for the care of those with disabilities? How much of the total spend goes to administrative costs? By that, I mean how much is allocated to state employees, county employees, third parties, and others? I would be interested in knowing if anyone has that data or how we might obtain it.
Marketplace Plans
One thing for certain in the IDD business is that you need a very clear plan for success for each market in which you operate. You must understand what you're good at and where that can be put to best use. We've seen far too many instances where companies invest heavily in states and markets without a critical understanding of their own abilities and the risks in that market.
Not all markets are created equally. Not all companies are created equally. Just because one company is succeeding in a market doesn't guarantee the same outcome for others. Putting the right resources in place in the correct markets is very profitable. Getting it wrong is costly, and getting out of those market positions can be difficult.
There's a concept that I first saw in the book "Good to Great" by Jim Collins. He introduced a model called the "Hedgehog Concept." Jim's experience led him to believe that to be successful, you needed to find something you're deeply passionate about, something you can do better than anyone else, and something that fits your economic engine.
Since it's impossible to be great at everything, find a service where you're passionate and where you can be great. The right economic engine means that you'll be rewarded for the work you do on behalf of your clients.
Cost of Living Differs by State
Table A includes a list of the dollars spent by state. While that might be a helpful starting point, it's likely an incomplete analysis. There are wide discrepancies in the cost of living from one state to another. The U.S. Department of Commerce has a Bureau of Economic Analysis that publishes a cost-of-living index by state. I've included this for 2023 in our table. I've normalized the spending by state by the cost-of-living index to get a better measure of the support level in each state. Finally, I've ranked the spending by individual IDD client for the 51 markets (50 states and the District of Columbia). Experience shows reimbursement rates are measured more accurately when applying a cost-of-living index. What are your thoughts on this approach?
Not-For-Profit Organizations and Competitive Dynamics
The IDD industry continues to operate with a substantial number of not-for-profit organizations. In some states, we've seen a preference among referral agencies for supporting them over others. There are states where over 50% of consumers are cared for by not-for-profit organizations. It's unclear to me if this preference for not-for-profits is better for the clients. Perhaps someone has information to share on this topic.
My point in raising the topic is only to ask if the presence of not-for-profits and possible preference should be considered in one's evaluation of an attractive market for investment.
Perhaps a measurement of a market's attractiveness would be better measured by the entire competitive landscape. By that I mean the number of competitors, and their size and strength, might be a better measurement.
Market Intelligence
At one point in my career, I was directed by the CEO of a large IDD company to acquire companies in a certain market. When I inquired as to his interest, he said, "Because we have a small presence there, we're losing money, and some acquisitions would really boost employee morale."
I reached out to the owners of every IDD provider in the state. I executed confidentiality agreements, met with owners, and reviewed financial results. Mostly, I got a lot of bewildered owners asking me, "Why would anyone want to buy here? None of us are making money."
I did not make any acquisitions for that CEO. In fact, my firm sold its operations shortly after that research. It's helpful to have a clear understanding of how well other providers are doing in the market.
Perhaps one way to think of the IDD landscape is that there are both attractive markets for investment and unattractive markets where profitability is unlikely. Within the group of attractive markets, there are strategies for success one can define and follow.
Percentage of the Population Receiving Supports
I've never seen research on the incidence of IDD by region of by state. I've assumed that IDD shows up as a percentage of the population regardless of all other factors. It's concerning when you see states with a very low percentage of the population receiving supports. Is this a helpful measurement?
Allow me to make another point about population. Our table shows a total of almost 1.6 million people receiving aid. Other studies, including one recently published by the University of Minnesota, shows that there are approximately 8.4 million people in the country with IDD.
Spend Based on Services Provided by Each State
Each state has its own approach to the IDD services provided and their funding. Some services are obviously more expensive than others. A state offering less expensive services might spend less than another based only on the mix of reimbursed services. Normalizing costs across service lines can be accomplished easily.
A similar point regarding services funded is the direction a state is trending with supports by service. Getting ahead of the changes is smart business. Expansion of services through organic growth or acquisitions has been proven very effective.
Payors
The consideration of payors is a critically important one. There are many subjects that we could get into under the heading of payors. Due to both its importance and the volume of material, I have chosen to park this topic for either another article or open it to an online discussion. I would very much like to hear others' perspective on payors.
Dealmaking
There are over 30,000 providers of IDD services in the U.S., and many of them consider a sale every year. The number of providers means that even after consideration of unusually long ownership periods, hundreds of providers can come up for sale in any given year.
We speak with buyers and sellers daily. We are uniquely positioned to be of help. Having worked with hundreds of buyers, we know the target geographies, services, and sizes of all the large buyers. We know the track record of buyers getting from a letter of intent phase to closing. Frankly, we know which buyers are most efficient and easiest to work with. This kind of experience and knowledge invaluable to sellers
Dave Turgeon, CM&AA
VERTESS is an advisory firm that works exclusively in healthcare. The behavioral health industry has been a foundational piece of the firm's business. Tom Schramski, one of the firm's founding partners, spent his career in this specialty. More recently, I, Dave Turgeon, have managed the behavioral health space for the firm. I transitioned to a focus in behavioral health M&A after working for decades in broader healthcare M&A. The transition was based on a family member with IDD and the desire to help those in the IDD industry who provide supports and services to this population.
Contact Dave at dturgeon@vertess.com or (617) 640-7239. He welcomes your feedback and input!
Volume 12, Issue 7, April 8, 2025
By: David Purinton, MBA, CM&AA
Selling your healthcare business, especially when you're the founder or long-time owner, is one of the most emotionally complex and taxing journeys you'll ever take. The sale is not just a financial transaction. It's the culmination of years, and sometimes even decades, of work. The lengthy process of selling your company brings a whirlwind of feelings, expectations, excitement, and challenges that can — and often will — impact every step of the transaction process.
In our extensive history and experience working with healthcare business owners, there's a recurring psychological pattern we've seen play out time and again. And it's this pattern — this rollercoaster of emotions — that can make or break a deal.
You Believe Your Healthcare Company is the Best
By the time you decide to sell your business, you've likely built something you believe is exceptional. With all the long hours you've put into the company, you know it inside and out. You may know the inner workings of your business better than those of your home. You've spent countless hours working to optimize operations, assembling a talented supporting team, building a strong customer base and referral network, and establishing a brand and reputation that customers and partners have come to trust and value.
When you look at your company, you see an asset that you strongly believe should command top dollar.
That belief is important. It's that confidence which has helped you find success with your business and will drive your desire to find a buyer that truly understands and appreciates the value of what you've worked to build.
But that belief is also the foundation for a deep emotional attachment that can complicate matters as you move through the transaction experience.
The Initial Surge of Seller's Motivation
When you first make the decision to bring your company to market, it's like flipping a switch. After what was likely extensive contemplation, you make the call, and the sales journey begins. Once that happens, the adrenaline will likely kick into overdrive, and you operate with intense focus and energy, which is exciting and one of the reasons many CEOs become addicted to healthcare mergers and acquisitions (M&A). You engage an M&A advisor, gather documents, clean up financials, and undergo a healthcare business valuation. You work with the advisor to assemble your detailed confidential information memorandum (CIM).
The first discussions with potential buyers fill you with excitement and nervousness. You rehearse talking points and then overanalyze your delivery afterward. You try to read between the lines of every question asked of you and your advisor and every follow-up email you receive.
This first surge of motivation that comes with bringing a company to market can make the beginning of the transaction process feel like a sprint.
And that's potentially a big trap.
The Transaction Process Slows, But You're Still Running
After the first few weeks or even few months of research, preparation, outreach to buyers, and calls, the deal process inevitably slows down. Gaps between communications grow. Buyers go dark temporarily as they work through their own — and extensive — diligence processes. A process that once seemed urgent now begins to feel sluggish, which naturally makes you uncomfortable and a little bit skeptical about the future.
At this stage, your motivation begins to shift. You're still committed to the transaction, but you're no longer sprinting. It's more like you're jogging or walking. Some days, there's no movement at all.
Despite all the work that's gone into the transaction, the finish line is still a ways away.
Under LOI: An Emotional Letdown
When your company finally goes under a letter of intent (LOI), it justifiably feels like a huge milestone. But emotionally, this is where a seller's psychology can really start to change.
You feel like you're in the home stretch, but in reality, you're about halfway there.
Due diligence accelerates. The quality of earnings (QoE) evaluation starts. Legal teams get involved or further engaged. The buyer starts asking more prodding questions that can feel personal at times. Some questions may have you believing that the buyer is undervaluing or misunderstanding your business. Conversations get tougher, and the excitement you had for selling your company crashes.
Then comes the fatigue.
Fatigue as a Common Deal Killer
By the time you're in the final stretch, which includes steps like negotiating the purchase agreement, resolving working capital targets, answering diligence questions for what feels like the tenth time, it's only natural to feel exhausted. After all, you've also been trying to run your company while knowing the end of your ownership is on the horizon. The team members you involved in the transaction are tired, and the rest of your staff may sense something big is happening behind the scenes. Your advisors are juggling a hundred things. And emotionally, you're drained, and you may even doubt whether you should have started this process in the first place.
This is the part of the transaction experience that is often unknown, surprising, and disappointing.
What we sometimes see in our seller partners at this stage is a kind of emotional paralysis. Owners slow down. They stop responding to emails as quickly. They delay document requests. They take longer to make decisions. They express skepticism in the buyer.
These actions typically don't stem from a lack of desire to close the deal. More often, it's simply that they've run out of gas.
And that, in the words of Kenny Loggins, is the "danger zone." Healthcare transactions don't usually die because of a single issue. They die from a loss of momentum. Buyers get nervous. Timelines slip. People — including the buyer's team — start second-guessing. Before you know it, the whole deal unravels and it's largely back to square one.
The Healthcare M&A Marathon Mindset
The key to succeeding — and surviving — in the prolonged sale process is understanding that a healthcare business transaction is almost never a sprint. It's more like a marathon. For some deals, it could even feel like an ultramarathon. From the get-go, you need to try to pace yourself — both emotionally and mentally. It's okay to feel everything talked about in this column: pride, anxiety, excitement, doubt, concern, and even grief. But what matters is showing up consistently, focused on the tasks at hand, and ready to do what's needed and asked of you.
The good news is that this is not a journey you should do alone. Build a team you trust and be transparent with them. Ask questions, speak up when you're struggling, and don't be afraid to let others carry the load when you need a mental or physical break — or when your still-operating business requires your complete attention. Above all else, make sure you're working with an experienced healthcare M&A advisor — someone you trust and with whom you feel comfortable picking up the phone and talking through the process, including the emotional side of it.
Throughout it all, stay focused on the end goal. Remind yourself why you started this process in the first place. And most importantly, save some fuel for the finish line — because that's when you'll need it most.
David Purinton, MBA, CM&AA
After working in M+A advisory and corporate financial consulting, I was fortunate to co-found Spero Recovery, a provider of drug and alcohol recovery services with over 100 beds in its continuum of residential, outpatient, and sober living care. As its CFO I led the company to significant revenue and margin growth while ensuring it adhered to the strictest principles of integrity and client care. After selling Spero I remained in leadership with the buyer as its CFO and quickly realized accretion and integration. Of the myriad lessons not learned while earning my MBA with Distinction in Finance from a Tier 1 university, the most profound was the importance of investing in my staff and clients. I learned that the numbers on a spreadsheet represent humans, families, and dreams, which was a radically different paradigm from investment banking.
At VERTESS I am a Managing Director providing M+A and consulting services to the Behavioral Health, Substance Use Disorder treatment, and other verticals, where I bring a foundation of financial expertise with the value-add of humanness and care for the business owners I am honored to represent.
We can help you with more information on this and related topics. Contact us today!
The healthcare revenue cycle management (RCM) sector is experiencing record merger and acquisitions (M&A) activity. At VERTESS, we are seeing private equity firms and strategic acquirers aggressively pursuing acquisitions of RCM companies big and small, with increased interest in those companies that offer artificial intelligence (AI)-driven automation, scalable technology, and strong financial performance. As healthcare providers struggle with rising administrative costs, payer rules, and increased patient financial responsibility, there is heightened demand for efficient, technology-enabled RCM solutions.
For healthcare RCM business owners considering an exit, 2025 presents a prime opportunity to sell at what could be a premium valuation. However, not all RCM businesses are equally attractive to buyers. The most valuable companies are those with qualities like recurring revenue, automation-driven efficiencies, a diverse client base, and strong earnings before interest, taxes, depreciation and amortization (EBITDA) margins.
Whether you're looking to sell your RCM business in the next 12-24 months or want to position it for future growth, understanding the current market and what buyers are looking for are essential.
Overview of the Healthcare Revenue Cycle Management Market
Over the past several years, the healthcare RCM market has experienced significant consolidation, and there's no indication this momentum will slow down soon. Consolidation is being driven by a variety of factors, such as increased financial pressures on healthcare providers and a shift toward technology-driven solutions. The ongoing complexity of reimbursement, rising out-of-pocket costs, and administrative inefficiencies are among the reasons that have elevated demand for automation, interoperability, and outsourced RCM services.
Private equity and strategic acquirers have increasingly focused on business-to-business (B2B) RCM solutions while largely avoiding direct-to-consumer healthcare segments, as these have struggled more with inflation coupled with consumer spending challenges. The B2B RCM market has experienced strong M&A activity, with the middle market attracting competitive valuations and a record number of private-equity-led platform acquisitions.
5 Key Trends Driving Healthcare RCM M&A Activity
Here are five of the trends that we're seeing as significant factors contributing to the elevated interest in healthcare RCM companies.
1. AI and automation reshaping RCM It's clear that the adoption of AI and automation is transforming the RCM landscape, with 98% of healthcare organizations indicating they have implemented or are planning to implement AI strategies to enhance efficiency and financial performance. AI-powered automation has become more integral to coding, claims processing, and eligibility verification, significantly reducing manual errors and administrative burdens.
The increasing reliance on AI has driven a surge in RCM M&A activity, with AI-driven RCM transactions representing 21% of deals in early 2023, compared to 11%-12% in prior years. Major acquisitions highlight this trend, including CloudMed's $4.1 billion acquisition by R1 RCM, with CloudMed having optimized reimbursement workflows using AI, and Apixio's acquisition by New Mountain Capital, with Apixio having leveraged AI-powered risk adjustment and analytics to improve financial outcomes.
2. Private equity firms leading the RCM buyout boom Private equity firms are the dominant force in healthcare RCM M&A, with nearly half of healthcare information technology (IT) transactions in 2024 involving private equity buyers. This figure marks a 20% year-over-year growth. Investors are aggressively pursuing buy-and-build strategies, acquiring smaller, specialized RCM firms and integrating them into scalable platforms to enhance value.
Noteworthy transactions include Francisco Partners' $1.1 billion acquisition of AdvancedMD, which expanded its cloud-based practice management and RCM software capabilities, and Petal Solutions' acquisition of Medcom Billing Systems, which strengthened its medical billing automation portfolio. Additionally, Elevate Patient Financial Solutions, backed by Edgewater and Frazier Healthcare, acquired NYX Health Eligibility Services, reinforcing its Medicaid-focused RCM solutions.
3. M&A valuations remain strong RCM companies continue to command high valuations, particularly in the middle market, where competition among investors is fierce. From 2021 to 2024, the average enterprise value (EV)/revenue multiple for RCM deals reached 6.1x, significantly outpacing the 4.4x average from 2018 to 2020. The middle market — transactions under $500 million — has been particularly active, making up more than 80% of sector deals in 2024 as both private equity firms and strategic acquirers compete for companies with highly desirable qualities like recurring revenue models, scalable technology, and strong contract structures. The combination of predictable cash flows and growing demand for AI-driven automation has positioned healthcare RCM as one of the most sought-after healthcare IT investment categories.
4. Consolidation of RCM technology firms The healthcare RCM market remains highly fragmented. This provides a strong M&A pipeline for platform acquisitions and roll-up strategies. Large healthcare IT vendors are actively acquiring RCM firms to integrate AI, automation, and risk adjustment tools into their solutions rather than building in-house capabilities. Industry leaders, such as Waystar, R1 RCM, and Epic, are expanding their product offerings in an effort to enhance revenue cycle efficiency and reduce administrative complexity. The scale of consolidation is further evident in Clayton, Dubilier & Rice and TowerBrook Capital Partners' $8.9 billion take-private acquisition of R1 RCM. This deal reinforced the attractiveness of end-to-end RCM platforms.
5. B2B healthcare RCM platforms outperforming direct-to-consumer healthcare IT As referenced earlier, B2B healthcare RCM platforms have become the preferred investment target compared to direct-to-consumer healthcare IT. B2B healthcare IT transactions accounted for about 72% of total sector deals in 2024, reflecting a more than 24% year-over-year increase. In contrast, direct-to-consumer healthcare IT companies (e.g., telehealth providers) saw a nearly 29% decline in deal volume due to issues including market saturation and economic pressures.
Private equity and strategic acquirers are prioritizing B2B RCM vendors with qualities like high customer retention, scalable software, and mission-critical revenue cycle capabilities. The shift toward enterprise-focused, technology-driven revenue cycle solutions reflects broader trends in healthcare IT, where automation, interoperability, and financial optimization are paramount.
5 Key Focus Areas for Healthcare RCM Business Owners Preparing for an Exit in 2025
Now let's look at five areas healthcare RCM business owners should focus on if they are planning for or considering a sale of their company this year.
1. Strengthening recurring revenue and contract stability Buyers, especially private equity firms and strategic acquirers, prioritize healthcare RCM businesses with predictable, recurring revenue streams and long-term client contracts. Owners should work to secure multi-year contracts with providers, payers, and health systems as this will help demonstrate revenue stability. Reducing customer churn and increasing contract renewal rates will enhance valuation and make the business even more attractive to investors. In addition, implementing tiered pricing models, value-based pricing, and/or bundled service agreements can further solidify revenue predictability and enhance the appeal of the company.
2. Investing in AI and automation for operational efficiency With AI-driven automation playing an increasingly pivotal role in healthcare RCM M&A, owners should be working to ensure their business integrates the likes of AI-powered coding, claims processing, and denial management solutions. We are seeing investors being particularly drawn to scalable, tech-enabled RCM platforms that improve financial outcomes for providers.
Partnering with companies that offer solutions or developing AI-enhanced revenue intelligence tools can differentiate the business while improving EBITDA margins, which will then increase deal value. Companies lacking AI capabilities may struggle to compete in a market where automated, data-driven decision-making is quickly becoming the standard.
3. Expanding market reach and diversifying client base Client diversification reduces risk and increases buyer appeal. Owners should look for ways to expand into high-growth verticals like behavioral health, dental, ambulatory surgery centers, dermatology, and physical therapy, where RCM services are in demand. Reducing client concentration risk — where a few large customers contribute to a disproportionate share of revenue — will be critical in maximizing valuation.
Additionally, broadening payer mix to include commercial insurance, Medicare, Medicaid, and value-based care arrangements can strengthen revenue resilience. Healthcare RCM businesses that serve a diverse client base across multiple provider specialties and geographies tend to attract stronger acquisition interest and achieve elevated multiples.
4. Optimizing financial performance and profitability Potential buyers closely evaluate key financial metrics like gross margins, EBITDA, and revenue growth trends. RCM business owners should focus on improving their cash flow efficiency, reducing days sales outstanding (DSO), and increasing clean claim rates to enhance financial performance. Streamlining internal operations through automated billing, outsourcing non-core functions, and implementing AI-driven collections processes can drive margin expansion.
5. Building a strong management team and scalable infrastructure Investors look for businesses with experienced leadership teams and scalable infrastructure that can support rapid growth post-acquisition. Healthcare RCM owners should invest in hiring (if needed) and retaining top RCM talent, strengthening their compliance teams, and ensuring strong leadership succession plans are in place. A well-prepared management team with clear growth strategies and efficient back-office operations will increase buyer confidence and valuation.
Additionally, maintaining a robust technology stack with interoperable solutions that integrate easily with electronic health record (EHR) systems, payer platforms, AI tools, and other solutions will improve operational scalability.
As M&A activity in the healthcare RCM sector continues to surge, business owners who proactively position their companies for an acquisition will have the greatest opportunities for a profitable exit. Whether you're looking to sell now or in the next few years, the key to securing multiple, realistic offers for your company and maximizing valuation is ensuring that your business meets the criteria today's investors are actively seeking — from AI-driven efficiencies and revenue stability to strong EBITDA and a scalable management team.
At VERTESS, we work exclusively with healthcare business owners to help them strategically prepare for an exit, negotiate the best possible deal, and achieve a successful and smooth post-transaction transition. Our deep relationships with private equity firms, healthcare IT investors, and strategic acquirers allow us to connect healthcare RCM company owners with the right buyers at the right time — better ensuring that they receive the highest valuation for their business.
Additional sources: Pitchbook, Bain and Co.
Jack Turgeon, MBA
As a Managing Director at VERTESS, I bring extensive experience in sales, consulting, and project management from early-stage startups. With an MBA from Babson College, I have a strong foundation in business strategy, operations, and financial analysis. My personal connection to behavioral healthcare through a family member motivates me to help business owners get the best deal possible while ensuring high-quality care for their clients. Throughout the M&A process, I provide comprehensive support at every step. I have a proven track record in negotiations and client management after working with companies in various industries. I’m excited to join VERTESS and make a meaningful impact on the lives of the owners I work with.
We can help you with more information on this and related topics. Contact us today!
When buying or selling a business, understanding indemnification is crucial. Indemnification clauses in merger and acquisition (M&A) agreements help protect both parties from potential losses and liabilities. This article will explain the types of indemnification protections available to Buyers and Sellers and provide practical considerations for each side.
What is Indemnification?
Indemnification means reimbursing the other party for a loss suffered due to a third party’s claim. In M&A, it also covers first-party liabilities, such as breaches of promises or issues that arise before or after the deal closes.
Purpose of Indemnification
The main purpose of indemnification clauses is to transfer liability from the party that incurs the loss to the party whose actions caused it. This ensures that the responsible party bears the financial burden of any claims or losses.
How to Protect Myself as a Buyer:
Representations and Warranties Insurance (RWI): This insurance protects Buyers against losses from breaches of the Seller’s promises. It covers unknown risks and can make negotiations smoother. However, like any insurance, RWI has exceptions and limitations, and the Buyer may be responsible for paying all or part of the premium.
Holdbacks: A portion of the purchase price is held back in an escrow account or a similar holding mechanism for a specified period to cover any potential claims. This ensures that funds are available if indemnification is needed and offers additional security to Buyers.
Seller’s Note: This is similar to a holdback, but without using escrow or a third-party. The money is held by the Buyer and can be used to offset any claims against the Seller. This means that if the Buyer needs to make a claim, they can reduce the amount they owe the Seller in future payments. This method generally requires less upfront capital and provides another way for the Buyer to recover funds if needed.
Earnouts: Part of the purchase price depends on the business achieving certain performance targets after the deal closes. This aligns the interests of the Buyer and Seller and provides protection against overpaying.
How to Limit Exposure as a Seller:
Limiting Scope of Indemnification: Sellers should aim to limit their indemnification obligations to avoid excessive liability. This can include specifying time limits for types of claims or setting an overall time limit for all potential claims.
Preparing for Potential Liabilities: Sellers should address any known issues before the sale and disclose all relevant information to avoid future claims. Sellers must ensure that all information and promises included in their representations and warranties to the Buyer are accurate and fully up-to-date.
Negotiating Terms: Sellers should negotiate terms that minimize post-closing risks, such as including a lower cap and a larger deductible basket, as explained hereafter.
RWI for Sellers: Sellers can use RWI to protect themselves against claims from the Buyer. This insurance covers breaches of the Seller’s representations and warranties, reducing the financial impact of potential claims and providing peace of mind to the extent covered.
M&A Transactions’ Special Indemnification Provisions:
Escrow Agreements: This provisional agreement sets aside a portion of the sale proceeds in an escrow account until certain conditions are met to cover potential indemnification claims.
Indemnification Thresholds/Baskets: This provision establishes a minimum amount of losses that must be incurred before indemnification kicks in. Baskets can be “first dollar” or “tipping basket” (covering all losses once the threshold is met) or “deductible” (covering only losses above the threshold). A Buyer will prefer a tipping basket because all losses will be covered. A Seller will prefer deductible to limit the money claimed.
Indemnification Caps: An indemnification cap limits the Seller’s indemnification obligation to a certain dollar value, typically equal to the indemnification escrow. This is a Seller friendly provision that will be capped to at least the value of the purchase price.
Other Common Limitations:
Mitigation: Indemnified parties must take reasonable steps to mitigate any loss, including incurring costs only to the minimum extent necessary to remedy the breach.
Insurance: Payments by an indemnifying party are limited to the amount remaining after deducting any insurance proceeds or similar payments.
Tax Benefits: Payments are reduced by any tax benefits realized as a result of the loss.
Special/Consequential Damages: Indemnifying parties are not liable for punitive, incidental, consequential, special, or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity, or loss of value.
Conclusion:
Indemnification is a key part of M&A transactions, providing essential protections for both parties. Clear and well-drafted indemnification clauses help ensure a smooth transaction and protect against unforeseen liabilities. To that end, it is important you consult with an experienced professional to assist you in drafting and negotiating these types of provisions in healthcare transactions.
Alfonso Zambrano, Shareholder – Brown & Fortunato, P.C. Alfonso Zambrano is a shareholder and director at Brown & Fortunato with a broad corporate practice emphasizing on mergers and acquisitions, corporate finance, business start-ups, real estate transactions and corporate governance. Alfonso has served as the principal legal advisor on numerous transactions in various industries to help clients achieve their goals and implement their business strategies. Alfonso is a member of the State Bar of Texas, the State Bar of New York, and the Amarillo Area Bar Association. He is also an active board member of the Amarillo Museum of Art, and the Harrington Regional Medical Center. He is currently serving as President of the Amarillo Local Government Corporation. In recognition of his community service, Alfonso received the Amarillo Chamber of Commerce Top 20 under 40 Award in 2019.
Michael Gawargi, Associate Attorney – Brown & Fortunato, P.C. Michael Gawargi is a member of Brown & Fortunato’s Corporate Group where his practice is focused on drafting and negotiating complex agreements, assisting in mergers and acquisitions, managing corporate governance issues, and guiding business entities through formation and strategic growth initiatives. Michael’s work is characterized by a detail-oriented approach to transactional matters and a commitment to delivering sound legal counsel. Michael is a proud alumnus of Texas A&M University, where he graduated magna cum laude with a Bachelor of Arts in Communication and a minor in Philosophy. He earned his Juris Doctorate from Southern Methodist University Dedman School of Law. During his time in law school, he was awarded scholarships recognizing his academic dedication and achievements.
Volume 12, Issue 1, January 14, 2025
By: Doug DePeppe
As a cybersecurity law attorney with experience handling data breach investigations, and the related ramifications and privacy compliance dimensions, I was pleased when Vertess approached me about publishing a blog article concerning cyber due diligence (Cyber DD). Engaging in due diligence of risk as part of mergers and acquisition (M&A) is a standard practice. So, sharing knowledge around Cyber DD was a sensible suggestion and I readily agreed.
In addition to breach coaching, my experience includes partnering with technology to create legal-tech solutions that help protect assets and businesses. For example, OnCall Recon is a law-led solution that uses patented netflow technology in a two-week audit to verify the effectiveness of security controls. My discussion of OnCall Recon for a Cyber DD use case was the other prompt for this article. The growing risks of cyberattack affect all sectors, so it is timely to inform the M&A community about the expanding risks.
A preliminary observation is whether representations and warranties (Reps & Warranties) is a satisfactory way of avoiding the additional expense of commissioning a Cyber DD service. The risk of a Reps & Warranties approach is whether the parties have a basis for making an appropriate representation about security or assigning responsibility for the risk of a data breach. Threat actors are skilled in establishing a persistent presence, which entails circumventing detection. Moreover, in the cat and mouse game of cybersecurity, the defenders are always playing catch-up with the latest attack technique. Cybercrime will be a $10 trillion black market industry in 2025. The attacks will keep coming.
Yet, in the cybersecurity market, it has usually been compliance mandates rather than cyber risk that has triggered spending increases to improve cyber hygiene. A pending compliance requirement may impact the M&A market – the Cybersecurity Incident Reporting for Critical Infrastructure Act (CIRCIA). In October 2025, a Notice of Proposed Rulemaking will go into effect, having broad implications for cyberattack reporting.
CIRCIA will require reporting to the DHS Cybersecurity and Infrastructure Security Agency (CISA) of any “substantial” cyber incident or ransomware payment by a “covered entity”. The proposed rule has a multi-part definition of a substantial incident, including:
Unauthorized access to a covered entity’s business system:
Caused by automated download of a tampered software update; or
Using compromised credentials from a managed service provider.
Intentional exfiltration of sensitive data in an unauthorized manner for an unauthorized purpose.
Notably, these criteria would trigger CISA reporting for attacks that would not meet the data breach standard under state law. These expansive triggering criteria suggest that third-party or supply chain attacks that compromise an M&A party’s network would trigger reporting to CISA. However, a further step in the analysis is whether the attacked party is a “covered entity”. Except for small businesses, the criteria would also implicate a broad swath of companies in mandatory incident reporting. If the attacked company meets the broad sector definitions of DHS, such as operating its business in the financial services, health care, or information technology sector, it would likely be a covered entity.
An additional wrinkle about CIRCIA’s application to M&A activities is the practice and utilization of a Data Room. The owner or custodian of the Data Room could have a duty to report to CISA if a substantial incident affected it (e.g., a supply chain attack, as noted above), especially because of all the sensitive information contained in a Data Room. Moreover, considering how threat actors seek to migrate and move laterally, the Data Room could be attacked by an upload of data from an M&A party or any of its advisors or partners. Hence, transaction brokers, financial service providers, M&A parties, Data Room Custodians, and any party associated with the M&A activity could suffer a substantial incident giving rise to CISA reporting.
CIRCIA’s final rule may change before it is promulgated in October of 2025. However, the underlying federal law was enacted in 2022 and supports Congress’ intent to improve cybersecurity for critical infrastructure. What is considered critical infrastructure is extremely broad; and therefore, CIRCIA will create an incentive for many companies to improve cybersecurity so that the risk of reporting to CISA is minimized.
For the M&A market, the same incentive applies. Hence, both Data Room cybersecurity and Cyber DD to increase assurance of a clean asset will likely receive higher priority in M&A activities in 2025.
Doug DePeppe
Doug DePeppe is a Special Counsel in the Firm’s Denver office with a national practice in data rights, data protection, sports data and licensing, and cybersecurity law. He is a member of the Firm’s Privacy & Data Security, Sports Industry, and Artificial Intelligence Practice Groups.
A retired Army Judge Advocate and national security attorney, Mr. DePeppe’s military cyberlaw career began with his Army-funded Master of Laws (LLM) degree from The George Washington University Law School with a cyberlaw focus, followed by his leading the Army JAG Corps’ development of a cybersecurity law practice. He next helped develop cybersecurity law capabilities in the cybersecurity divisions at Homeland Security, including serving as the legal advisor to US-CERT.
In his cybersecurity law practice, Mr. DePeppe assists clients in data breach investigations, orchestrating the incident response and crisis management as a Breach Coach. Mr. DePeppe has assisted clients with cyberattack response services for twenty years. He is well known and respected in the field, has presented at major conferences on nearly every continent across the globe, and has published in Forbes, trade journals, and other online magazines.
Mr. DePeppe also assists clients with data privacy prevention and compliance. Leveraging his interdisciplinary knowledge and cybersecurity resource network, he helps clients with risk assessments, leadership and boardroom training and mentoring, third-party contract and supply-chain risk review, cyber due diligence for mergers and acquisitions, and other cyber risk advisory and services.
With his background in data rights, Mr. DePeppe also advises clients concerning name-image-likeness (NIL) protection and licensing. Universities, collectives, athletes, sports entities and associations, and sports agents have growing needs to protect NIL monetization efforts from infringing misappropriations.
While a Judge Advocate, Mr. DePeppe was a trial attorney in courts-martial for five years and became a certified capital case defense counsel. This criminal law experience aids his client advice concerning cybercrime. Additionally, Mr. DePeppe has used his litigation experience in the representation of sport sector mediations and arbitrations. In particular, he has successfully represented several soccer clubs and athletes in administrative disputes arising from the Ted Stephens Amateur Sports Act and SafeSport.
The M+A market continued to struggle to rebound this year after a slow 2023, undoubtedly due in part to continuing high interest rates and the pending election. Straightforward deals that, in another year, would have successfully closed did not, while more complex deals were met with various roadblocks. However, with interest rates slowly coming down and the election results in, all signs are pointing to a rosier outlook in 2025 for M+A activity. VERTESS is excited to share its annual year-end review and future outlook for each healthcare vertical in which we operate. We are encouraged going into the new year and are looking forward to what 2025 has to offer!
If you'd like to discuss your healthcare market in greater detail with any of our Managing Directors, we have provided contact information for each of them at the conclusion of their comments.
Bradley Smith, Managing Director/Partner
Durable Medical Equipment / Home Health / Medical Device Manufacturing
Durable Medical Equipment (DME)
Valuations in DME this past year have unfortunately continued their downward trend since the highs of 2021 and 2022, albeit at a much slower pace. As a result, there have been fewer transactions than in a normal year. There have been a few exceptions to this, namely very niche and large providers bucking this trend i.e. Nationwide and Rotech. On the positive side, private equity as a whole has shown renewed interest in the DME market with favorable modeling on the industry at large. In 2025 I look to see more PE and PE-backed players to increase acquisition efforts and see a modest increase in valuations as well as the number of transactions. In fact, we were already starting to see this uptick in Q4.
Medical Device
Valuations in the broader Med Device market have remained stable despite a slowing in transaction activity in 2024. Largely, the transactions completed this past year have been strategic, with a continued decrease in private equity platforms. I am looking for this trend to change based on the favorable broader market conditions of lower interest rates and a surplus of dry powder. This will lead to increased competition for assets and a modest increase in valuations.
In 2024, M+A activity in the SUD and mental health sectors grew by 6%, with 80% of deals focused on follow-on acquisitions. This highlights buyers’ preference for scaling existing platforms and lowering their average entry multiples, signaling a cautious yet optimistic market.
In 2025, this trend is expected to continue, bolstered by stabilized interest rates and operational costs. Capital will increasingly target providers offering a continuum of care, aligning with the industry's shift toward value-based models that prioritize breaking down silos and creating seamless, single-point entry systems. New platform acquisitions are likely to drive further follow-on deals, providing early-stage platforms with favorable opportunities for sellers. Providers demonstrating integrated care models, operational efficiency, strong outcomes, and robust telehealth offerings will remain highly attractive, positioning them to secure premium valuations in an active, competitive market.
The pharmacy industry faced a multitude of challenges in 2024. New drug approvals, innovative formulations, and revised pricing regulations reshaped the landscape. Drug affordability took center stage, with initiatives like affordable insulin and biosimilars gaining prominence. Pharmacy Benefit Managers (PBMs) faced increased scrutiny from employers and consumers demanding transparency in their practices. PBM actions inadvertently drove patients away from independent pharmacies.
The retail pharmacy sector experienced significant disruption due to years of mergers and acquisitions, rapid expansion, and the entry of major players like Amazon and GoodRx. The 340B Drug Pricing Program underwent dramatic changes, particularly impacting hospital-based pharmacies. In the specialty pharmacy realm, a shift from brand-name drugs to biosimilars and increased scrutiny of rebate programs aimed to reduce costs. Additionally, hospital-owned specialty pharmacies emerged as a growing trend. Workforce shortages further compounded the industry's challenges, affecting staffing levels and operational efficiency. The cyberattack on Change Healthcare had a significant impact, exacerbating industry-wide issues. Declining customer satisfaction, rising costs, and increased PBM scrutiny added to the complexities. As the industry continues to evolve, digital technologies play a crucial role in consumer interactions with PBMs and pharmacists. In 2025, M+A activity is expected to remain high, especially in the compounding, specialty, home infusion, and nuclear pharmacy sectors. The retail pharmacy sector is likely to face continued challenges in the coming year.
Intellectual/Developmental Disability / Traumatic Brain Injuries / Behavioral Health
Throughout 2024 we continued to see good deal flow and strong valuations in small and mid-sized behavioral health deals. Business owners who chose to sell in 2024 are very pleased with their results and the processes we ran. Our expectations are that the business environment in 2025 will likely continue to remain strong as this space is far more stable and predictable than other lines of business.
The medtech and healthcare IT sectors have seen significant momentum in M+A activity and private equity interest, particularly as innovation continues to reshape the landscape. Medtech has focused on scaling promising technologies, such as surgical robotics and brain-computer interfaces, which are drawing substantial funding and strategic interest. Healthcare IT, on the other hand, remains a resilient and attractive area for PE sponsors, driven by consolidation and demand for solutions like chronic disease management, digital therapeutics, and real-time analytics platforms. Investors are capitalizing on these opportunities, reflecting a strong appetite for scalable, high-growth assets in these markets for 2025.
Private equity activity in healthcare services has been marked by a cautious yet optimistic approach over the past year. Deal flow slowed slightly in 2024, as buyers and sellers navigated market timing challenges and economic uncertainties. However, interest remains high in sectors like infusion services, medspa, and outpatient mental health, although the scarcity of platform-scale assets poses challenges. Specialty physician groups have become a contrarian play amid PPM dislocation, though strategic exits are beginning to thaw the market. Infusion services have stood out as a top-performing category, and with increasing optimism, 2025 is expected to bring a modest recovery in deal activity across healthcare services, underpinned by strategic acquisitions and the gradual stabilization of macroeconomic factors.
As we approach the end of 2024, we’ve observed a slowdown in closed transactions within the healthcare M+A landscape compared to the previous year. This deceleration can be attributed to cautious market conditions and regulatory complexities. However, the outlook for 2025 remains positive, with expectations for a resurgence in deal activity. Companies are increasingly recognizing the importance of strategic acquisitions to enhance service offerings and improve operational efficiencies. With a renewed focus on partnerships that leverage data analytics and innovative technologies, we anticipate a wave of transactions aimed at navigating the evolving healthcare landscape. Investors are poised to capitalize on these opportunities, and as market conditions stabilize, we expect to see more deals successfully closing in the coming year.
Durable Medical Equipment / Home Medical Equipment
Overall, 2024 saw a slowdown in deals for DME; specifically in the areas of Medical Supply and CRT. While the category did slow, some therapies and product-specific areas did experience normal to increased interest and valuations. Clinical therapies such as Wound Care, Urology, and Diabetes CGM saw strong interest and acquisitiveness from both large strategic buyers and financial buyers. Overall however, these categories have seen tremendous consolidation during the past decade, so much of the slowdown comes from low inventory of companies as well as larger buyers settling on the many transactions completed during record times of 2021 and 2022. Other therapies such as Incontinence, Enteral, and Ostomy did not attract the level of interest as in years past. Much of the interest, however, was very targeted toward specific geographies, payers, and companies with value-based programs that brought higher margins to these commodity-type “lower margin” therapies. Similarly in CRT, consolidation over the past decade has hit this category hard and interest from the larger strategics seems to have slowed down.
With the Centers for Medicare & Medicaid Services and private payors increasingly focused on reducing healthcare costs and improving patient outcomes, home health agencies are stepping up to play a bigger role in the overall care landscape. We saw the nationwide rollout of home health value-based purchasing gain further traction in 2024 and build momentum heading into 2025. This model rewards participating home health agencies for delivering high-quality care and enhancing patient outcomes.
Many agencies are maximizing these reimbursement opportunities by leveraging new tools for measuring and improving outcomes. Thanks to advancements in data analytics and digital platforms, home health providers can more easily track patient progress and report essential metrics. These insights allow them to refine their care strategies, increasing their chances of higher reimbursements. As home health agencies become even more integral to value-based care, buyers are eager to get involved early and capitalize on the sector's growth.
Smaller agencies or those with fewer resources have faced challenges with the financial and operational investments required to meet new value-based reporting standards. This is creating an opening for investors and an opportunity for home health agencies. Agencies open to a financial or strategic partnership can gain access to the capital they need to make these investments and remain competitive.
Ambulatory Surgery Centers / Hospitals / Physician Practices
2024 served as a litmus test for healthcare companies as we move to a post-COVID-19 norm. As a result, 2024 defaulted to safe acquisitions to mitigate risk for buyers. This was primarily observed in companies that were affected both positively and negatively by the epidemic. Among these companies, Urgent Care, laboratory companies, revenue cycle management (RCM), and Ambulatory Surgery Centers were most affected. The good news for 2025 is we can now see acquisitions trending through platform consolidation and buyers entering the market more confident and willing to take more risk. The indicator for this change is a heavy interest in strategic buyers looking to add to existing platforms and enhance their portfolio with add-ons, whereas these actions were stagnant in 2024. There is increased interest in RCM companies and Urgent Care centers that were considered a higher risk during COVID due to the risk of future non-reoccurring revenue. Ambulatory Surgery Center management companies are looking to grow exponentially in 2025. This heightened interest can be validated by the increase in their 2024 acquisition budgets. The new target audience for these specific companies will be private equity groups who are still cautious about the risk and acquiring funding while staying competitive with bids. It will be the job of intermediary M+A companies to provide a narrative for sellside opportunities by utilizing 2024 data to justify a meaningful multiple for their client and minimize risk in a now more stable market.
Market valuations for healthcare companies/practices sold in 2024 included many above-average offering prices. We received more outlier offers in 2024 than we’ve seen since pre-COVID. That’s the good news. The not-so-good news was that M+A transactions in 2024 took much longer than usual to complete. This may be the result of a continued flight to quality that we’ve experienced since post-COVID. The good news is that most healthcare companies have long since gotten past the ill effects of COVID-19 in their financial performance.
We expect 2025 to be much more robust than 2024 regarding M+A transactions. We sense a greater level of optimism among market participants. The tailwinds impacting M+A in 2025 are based on improving companies’ financial performance, lower interest rates, aging baby boomers/business owners seeking to retire, increased liquidity of investors/buyers, and lower inflation. We further expect a higher-than-normal amount of outlier offers for healthcare companies in 2025.
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