Accelerating Healthcare Growth Through Acquisition or Recapitalization

Volume 11, Issue 17, September 10, 2024

By: Gene Quigley

Many small healthcare business owners struggle when they achieve a certain size or revenue stream. While these owners may see an opportunity to scale, there are challenges: They still have the "mom-and-pop" ideology (i.e., small company mentality) and their organization is not ready or capable of scaling up.

This can be a frustrating experience for an owner. They feel their company can do so much more business, yet they lack the capital, know-how, technology, and/or experience to transform their healthcare organization from a small business (e.g., $20 million in revenue) business to a much larger business (e.g., $100 million in revenue).

Such a situation is risky for a healthcare business owner. If the owner attempts but struggles to grow the revenue and/or EBITDA of the company, this could greatly devalue the business in just a few years. But that doesn't mean owners should abandon their vision for growth. Rather, they may want to explore a sale or recapitalization.

By pursuing one of these options, owners can accomplish a few worthwhile goals. They can get a nice, first "bite of the apple" for their business. They reduce their financial risk by no longer having so much of their finances in one basket. If they stay involved with the company as either a CEO or board member, they can work with a financial or strategic buyer with the experience and resources to scale and accelerate growth. This collaboration can make achieving growth goals possible and do so in much less time than if the owner attempted to achieve such growth on their own. If growth is successful, the owner and existing (or new) management team would be able to get a second — and likely much bigger — bite of the apple and then cash out with the right rollover or stock incentives.

7 Steps to Achieving an Ideal Healthcare Transaction

If proceeding with a sale or recapitalization sounds like a good plan for your business, follow these seven steps to help find the right buyer and partner who can help you take your healthcare company to a much higher level.

1. Set your healthcare transaction goals 

Take time to determine the goals for the transaction you're considering. Make goals lofty but achievable. To accomplish the latter, put together a supporting team that will provide the backing and expertise you need to develop an optimal plan for moving forward. This team should be comprised of key internal executive leaders, such as the chief operations officer and chief financial officer, and key external professionals, such as a healthcare M&A advisor (like one from VERTESS), attorney, and accountant.

2. Outline your ideal situation as the owner/leader

How much of your company are you willing to sell to acquire the resources needed to achieve your growth plan? In what capacity do you want to remain with the organization following a transaction? Answering these and related questions concerning what you envision as your company's post-transaction situation and your level of continued involvement is important to ensuring an optimal outcome when your company goes to market.

3. Assess your organization's personnel

Start with your immediate leadership team and cascade down. Ask yourself questions like: Do they have the drive, capability, and experience to take on this journey? Can you envision them as part of a company you hope will be a few or even several times larger in just a few years? If you cannot answer these questions with a confident "yes," you may need to consider changes to your personnel — which brings us to the next step…

4. "Topgrade" your leadership team

Before you proceed with bringing on a financial partner, you will want to consider topgrading your leadership team. Topgrade means two things: It can be a nice way of saying upgrade your team by replacing existing leaders with better qualified leaders, and it can mean improving your current team though training.

Why is topgrading important when contemplating a sale or recapitalization? This is not the time to hope you have the right people or look past shortcomings that make these individuals less effective in their roles. Be prepared to replace leaders or find them new roles that will be better fits in support of the overall growth plan, or at least consider whether training can strengthen your existing leadership team.

If you have a solid leadership team, it's still worth taking the time to identify knowledge gaps and then invest in training and executive coaching. A financial buyer will see much higher value in an organization that comes to the table with an all-star leadership team already in place and ready to put in the work that can help achieve growth goals.

5. Test the transaction waters

Even when owners are not necessarily looking to sell, they should always be putting feelers out to gauge buyer interest in their company. This way, they won't miss key opportunities to bring in a partner, sell, or recapitalize.

If you're serious about testing the waters, this is a great time to speak to a healthcare M&A advisor and receive a valuation on your organization. A good advisor will coach you on whether it is the right time to sell and provide advice on what you should do to better prepare for a successful sale. An advisor can share competitive insights (e.g., previous competitive sales and multiples) and paint a picture of what buyers are currently looking for — and, just as important, not looking for.

If you decide to sell, an advisor can be invaluable in creating that competitive environment that attracts buyers and drives up your sale price. In addition, an advisor will aid in all the transaction negotiations and help ensure the appropriate stock options and rollover equity are included in the deal. Learn more reasons why you should work with a healthcare M&A advisor in this column by fellow VERTESS team member, Bradley Smith.

6. Identify your ideal partner

If you feel it's time to grab that first bite of the apple and your organization is ready to scale with the right plan and the right team, think long and hard about what the ideal buyer looks like. Is it a financial partner? Do you want a strategic buyer who will make your company part of a larger competitor's organization? VERTESS's Alan Hymowitz recently discussed the three predominant healthcare buyer types and the challenges associated with completing transactions with these buyers in this column.

In most scenarios where owners want to stay on with their company and cash out even bigger in a few years, the financial buyer tends to be the clearer path forward. This is not to say a strategic partnership cannot work. In some cases, it's the right decision. However, when you are looking to drive the organization beyond your current capabilities, someone who is going to invest quickly into the company and target its key needs for growth tends to be the right partner.

This is also an area where a healthcare  M&A advisor can prove very helpful. Most advisors, especially ones specializing in your line of business, have extensive resources and "rolodexes" of potential buyers and can quickly help you cast the right, wide net to initiate discussions with high-quality, potential buyers.

7. Fish or cut bait 

After going through the processes discussed thus far, which should help you gain a better understanding of your company, its leadership, and your potential paths forward for sale or other type of transaction, it's time to make a decision. As the owner, you will want to do what is right for you and the future of your company, including your team and its customers. If you decide to proceed with pursuing a transaction, the work you have put in should help ensure a more successful outcome. If you feel it's best to wait a year so you can better get your house in order, you will be in an even stronger position when the time is right to proceed.

Understanding Your Healthcare Transaction Options

Selling your "baby" can be emotional but exciting as well. Following the steps above and better understanding your healthcare transaction options will put you in a much stronger position regardless of whether and when you sell.

If you have questions about pursuing a sale or recapitalization, reach out to our team of expert healthcare M&A advisors at VERTESS. We'd love to learn about your business and talk about how we can work together to achieve the best path forward for you and your company.

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.

We can help you with more information on this and related topics. Contact us today!

Email Gene Quigley or Call: (732)600.3297.