Parallels Between Early Clinical and Early Transaction Intervention

Volume 11, Issue 3, February 13, 2024

by David Broussard

My educational and professional experiences have demonstrated to me the importance and value of early intervention, both in medicine and in business. I received my nursing training in the Houston Medical Center at Hermann Hospital, Methodist Hospital, and MD Anderson Cancer Center. I later went on to launch numerous medications at some of the world's largest pharmaceutical companies. As a Managing Director at VERTESS, I try to apply the concept of early intervention to mergers and acquisitions (M+A). 

We know early intervention is paramount for long-term clinical outcomes. The sooner we know someone has a condition like diabetes or chronic obstructive pulmonary disease (COPD), the sooner we can act on the knowledge by making timely decisions that can help get the disease under control and improve one's quality of life. 

I wanted to share a little about my background because this column speaks to what I've learned from my clinical experience and what I learned from M+A work and how they relate, specifically regarding the concept of early intervention. 

On the transaction side, we know early intervention for exit planning is important for outcomes as well. Most owners of middle market companies tend to start planning their exit years in advance. In sharp contrast, we often see the owners of lower-middle-market healthcare businesses wait much longer to start their exit planning, which can lead to less desirable outcomes. 

Here are five reasons you should intervene early when it comes to planning for an exit. 

1. Selection of an M+A advisor. One of the first steps you will want to take as you begin work on your exit planning is to choose a healthcare M+A advisor. This is a decision you do not want to rush as the individual/firm you choose will play a significant role in helping you effectively prepare for and execute your sale. Starting your research into an advisor early will give you adequate time to perform your due diligence and make an educated decision. 

Earlier selection of an advisor also builds in more time for the advisor to perform several key tasks essential for transaction success. This includes completing an initial assessment of your business and its operations, which will allow you to better understand your strengths and weaknesses. With this information, the advisor will work with you to identify the best opportunities for improvement that can help attract more interested buyers resulting in a higher enterprise value.

The information gathered through the assessment will also enable the advisor to establish the valuation range for your business and then provide guidance as to what you can do to increase the valuation or better ensure and secure a higher valuation.

Finally, early selection of an advisor builds in more time for you, the advisor, and other members of your transaction team (e.g., accountant, lawyer) to complete the steps required to bring a business to market. 

2. Improved enterprise value. At VERTESS, we frequently encounter owners who suddenly decide "today's the day" to step away from their company. This rarely bodes well for an owner interested in maximizing the value of their business. It's akin to a patient who smoked for 25 years suddenly deciding to stop smoking after being diagnosed with COPD and being placed on oxygen.

For example, a recapitalization can be a great way for owners to take chips off the table, but it requires patience and long-term planning. With a recap, owners are paid a portion of the company's value at close and then roll a portion of the equity (i.e., hold a minority percent of the stock in the company). If an owner can stay on and remain active with the company, when it's sold again (usually within 5 years or so), the second payout is typically as big (if not bigger) than the initial bite out of that apple even though it's for a minority percentage. The second bite out of the apple is usually much bigger than the first, but this all takes planning.

3. Mitigating risk. Early clinical intervention greatly improves the risks associated with almost any disease. Similarly, early transaction intervention helps address risks that can turn buyers away or reduce enterprise value.

A common transaction risk is the impact of an active owner leaving the company. If the owner plays a key role in securing referrals and maintaining referral relationships, a prospective buyer may have concerns regarding the owner's exit. Leadership succession planning is critical. It often takes time to find the right operator and train them to fill the numerous role(s) many owners often perform. Buyers prefer a strong leadership structure, which ensures future revenues are not impacted by an owner's exit.

Subcontractors have been known to be viewed as a risk by prospective buyers. Usually having a few subcontractors is not an issue. However, if "subs" make up more than 50% of the workforce, it can become a greater concern. Subcontractors are viewed as having significantly reduced "stickiness" to the organization. With more time, an owner can either work to convert subcontractors to employees or hire staff to take over the work performed by subcontractors. Replacing subcontractors with full-time staff may initially hurt the bottom line, but it's going to greatly improve the company's overall value. Buyers don't just buy companies; they buy the employees too.

4. Drive valuation. Early transaction intervention affords owners and leadership more of their most precious commodity: time. With enough time, we at VERTESS can guide sellers to achieve their desired transaction number or a figure that's as close to that number as possible. Together, we can work to take targeted efforts toward increasing your multiple. This is work that tends to require time, but it is an investment that can truly pay dividends.

Buyers usually see through efforts to inflate addbacks and EBITDA. It's our job as advisors to provide guidance along the path to a realistic representation of your company.

5. Smart tax strategy. Clinical interventions that occur later in disease progression tend to be costly, for both the patient and insurer. The same can be said for late transactional interventions related to taxes. Taking a company to market brings with it considerable tax concerns. However, if we're able to intervene early, we can help put mechanisms in place to mitigate these tax risks, thus allowing you to hold on to considerably more cash at close.

Start Your Exit Planning Now With VERTESS 

As a healthcare-focused M+A firm, VERTESS helps business owners effectively execute the sale of their company. We collaborate with owners to define clear objectives, develop a comprehensive plan, craft a winning strategy, and maximize results. If a sale of your company is on the horizon — even if that horizon may be a few years out — please contact us. We would welcome the opportunity to help you understand the value of your business and how we can work together to make sure you earn the highest return on the investment you've made in your company.

David Broussard RN, CM&AA

My first job was working for my family’s home health agency in League City, Texas. I started in the file room and worked my way up to patient scheduling and, finally, strategic planning before my family successfully sold our sizable business.

I did my nurse’s training in the Houston Medical Center. It was during my training at Hermann Hospital, Methodist Hospital, and MD Anderson Cancer Center where I had the opportunity to learn from some of the finest clinicians in the country and my passion for treating patients was cultivated.

Prior to working with VERTESS, I strategically lead sales planning initiatives for organizations such as GlaxoSmithKline, Novartis, Bristol-Myers Squibb, and Astra Zeneca. I’ve launched numerous blockbuster medications that have made significant differences in many patients' lives. This experience has given me a unique understanding of contractual arrangements and the impact managed care and government payers can have on the overall well-being of a company and/or industry. In my 20 plus years of experience in pharmaceutical sales, I won numerous national awards with four of the top pharmaceutical companies in the world.

As I know from personal experience, the road to a successful transaction can have twists and turns. In previous positions, I spent a great deal of time analyzing data to strategically grow our market share. In my role at VERTESS, I am taking that same data-driven, research-based approach to best help healthcare entrepreneurs understand their options in the marketplace and assist them in reaching their goals.

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

Email David Broussard or Call: (817) 881-1493