Are You Ready to Sell Your Healthcare Company?

Volume 10, Issue 26, December 19, 2023

by David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC

After spending many years building your healthcare company, it's increasingly likely that you will find yourself thinking about the prospects of selling it. Whether you have a formalized exit strategy or are taking a "seat-of-the-pants" approach to preparing for sale, you must be able to view your company from a buyer's perspective.

More specifically, you will want to understand the key "value drivers" of your company. These are the qualities prospective buyers are most interested in seeing and learning about. To gain a better understanding of how your company is performing — specifically concerning these value drivers — buyers will typically ask you the following questions:

• Does your company have a history of consistent growth?
• Is your company part of a growing sector?
• Are you increasing your share of the market?
• Have you created barriers to competition?
• Are any of your customers/patients contractually committed?
• Are any of your products or services unique, and do they provide you with a competitive advantage?
• Do you have a recognizable brand?
• Is your company innovative?
• Are you utilizing state-of-the-art technologies?
• Do you enjoy net margins greater than the industry average?
• Do you have a diversified customer/patient base?
• Do you have a diversified payer mix?
• Are you using best practices for accounting and financial matters?
• Is your company sustainable without you?
• Are your products or services delivered in a systematic and process-driven manner?
• Do you track key measures of customer/patient satisfaction?
• Do you have a skilled leadership team that succeeds in meeting or exceeding your goals and objectives?
• Can your company attract, develop, and retain quality employees?
• Are all your company's legal matters in order?

If you find it difficult to confidently answer these questions, your company might not be ready to sell, or at least not sell at a price you desire (To gain a better understanding of whether your company is likely to sell, I encourage you to read my column, "How to Determine the Probability of Closing a Healthcare Transaction"). The good news is that holes in your operations that may stand in the way of a successful transaction are usually fixable.

Preparing your company/practice for sale may require the following steps:

• Financial statements: Ensure your financial statements are accurate and up to date. This includes balance sheets, income statements, and cash flow statements.
• Document processes: Clearly document all operational processes. This can make the transition smoother for the buyer.
• Legal compliance: Ensure your business is compliant with all relevant laws and regulations.
• Market analysis: Understand your market position, including strengths, weaknesses, opportunities, and threats,
• Self-due diligence: Conduct a thorough internal due diligence process to identify and address any potential issues before they are discovered by a buyer.
• Marketing materials: Prepare professional marketing materials, including a confidential information memorandum.
• M+A and legal: Engage experienced healthcare M+A and legal advisors to guide you through the selling process.
• Deal structure: Determine the preferred deal structure (e.g., asset sale vs. stock sale) and negotiation terms.
• Contingency planning: Anticipate potential issues and have contingency plans in place.
• Tax advisors: Consult with tax advisors to optimize the tax efficiency of the transaction.
• Timing: Consider market conditions and the economic environment when deciding the timing of the sale.
• Customer relationships: Strengthen customer relationships to enhance the perceived value of the business.

If you intend to sell your company in the near or at least the not-so-distant future, don't delay. The healthcare M+A market is very active, and this activity is expected to continue in 2024. Buyers are eagerly acquiring healthcare companies that create investor/buyer value. Company owners only have one opportunity to make a first impression on buyers. Will your first impression lead to a successful sale at the price you want for your company, or will it leave you with long-term regrets?

The work you put in today can significantly influence the reward you earn tomorrow. That work will likely be easier and that reward increased by partnering with a healthcare M+A advisor, such as one from our team at VERTESS. Learn what we can do for you and your healthcare company by reaching out using my contact information below.

David E. Coit, Jr., Director of Finance + Valuation / Partner

David is a seasoned commercial and corporate finance professional with over 30 years’ experience. As part of the VERTESS team, he provides clients with valuation, financial analysis, and consulting support. He has completed over 150 business valuations. Most of the valuation work he does 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.

David holds 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. Moreover, the topic of his doctoral dissertation was business valuation.

David 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. He is a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.

Before joining Vertess, David spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During his commercial finance career, he analyzed the financial condition of thousands of companies and had successfully sold over $2 billion in corporate debt to institutional buyers.

He is a former adjunct professor with 15 years' experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.

Please contact David at dcoit@vertess.com or +1.480.285.9708.