M&A in Healthcare: Look Beyond the Stats. Here's Why.

Volume 10 Issue 11, May 23, 2023

The M+A industry regularly reminds us that it’s tough to sell any business, including healthcare companies. Published data from the likes of exit planning experts, investment banks, and trade associations suggest that somewhere between only 10-30% of businesses complete transactions.

Why such a dismal success rate? The typical reasons are logical enough: sellers are not emotionally ready to leave their “baby”; poor financials mean there are few interested and qualified buyers; the seller’s local service/product is not scalable; and/or their company is facing unknown risk in an evolving marketplace.

Skilled healthcare M+A advisors can help sellers build value or manage the most challenging transactions, which is why we trumpet these statistics. But it’s very important to understand that there are serious problems with the data itself.

Here are three reasons data about successful healthcare M+A transactions may be missing the point.

1. The data used is based on a poor sample. Interviews by VERTESS with multiple competitors in the healthcare M+A marketplace reveal they reported very few or none of their closed healthcare transactions to an independent database during the past decade. While sources such as G4 Data and Pitchbook are trying to address this situation, deal activity in the lower end of the middle market (less than $25 million revenue) is largely missing from the analyses noted above. How can we make decisions based on such questionable data?

2. Everyone transitions and transacts. Even when a healthcare company owner doesn’t use an advisor or investment banker, a transition eventually will take place. After all, healthcare business owners can’t live forever, so something will happen to their business even if the original M+A goal isn’t met. The business may be sold to a partner or other business colleague, the company may be passed on to a family member(s), pieces of the business may be sold as assets to another entity, and/ or the seller may close the business. In each of these cases, a transaction occurs and each of these transactions could be strengthened with advice and consultation from a healthcare M+A professional.

3. The 70-90% of business owners who do not use advisors are typically not included in the statistics. Such owners are the ones who would probably benefit most from professional advice and consultation. Why? They likely have significant room for improvement that can be cost-effectively addressed through building value, strengthening reporting, increasing market awareness, and undertaking other improvement efforts. Working with a healthcare M+A advisor to identify and capitalize on such opportunities can help healthcare owners better position themselves and their businesses for greater success and ultimately the best transaction possible.

Key Takeaway: Ignore the "Noise" and Focus on Your Opportunity

While considerable media attention is paid to industry predictions and reports, whether a transaction is successful will largely boil down to the specifics of the entities involved in the transaction. It's worthwhile for sellers and buyers to monitor headwinds and tailwinds, but when it comes time to consider a sale or acquisition, what will matter most is whether the transaction makes sense for all parties involved rather than what pundits and publications are claiming. 

Working with an M+A advisor can help you cut through all this "noise" — including any inaccurate information circulating about — to determine what you should and should not focus on to best ensure you achieve your goal and buck the sup