VERTESS Answers: Should I Work With a Healthcare Advisor or Broker?

Volume 11, Issue 4, February 27, 2024

By: Alan Hymowitz

We will occasionally hear from the owner of a healthcare company something along the lines of the following: "I know someone who just sold their [type of healthcare business] with the help of a business broker. What's the difference between working with a broker and an advisor like you?"

In this column, I will strive to answer this question, which should also help you understand why working with a healthcare M+A advisor is likely to be in your best interest when you determine it's time to sell your company. I'll start by providing some background information on a typical business broker who works in the healthcare space and instances where the role's deliverables may overlap with that of an M+A advisor. Then I will provide further information on what you can expect from working with a healthcare M+A advisor and how this experience is likely to lead to more successful sales.

Role of a business broker

A business broker facilitates the buying or selling of a business. This individual can either represent the buyer or seller in a transaction. The same can be said of a healthcare M+A advisor. Both brokers and advisors can act as intermediaries between buyers and sellers. Both will privately negotiate deals, and both will help with the transfer of ownership of a business to complete a transaction.

That largely defines the role of a broker: making introductions between buyers and sellers, helping with negotiating deals, and aiding in the transfer of ownership. Payment to a broker is typically a pre-established commission contingent about the completion of a transaction.

What is also important to know about most brokers is they tend to serve a wide range of clients operating in a wide range of industries. It's not unusual for a broker to be involved in healthcare transactions as well as those in manufacturing, software, construction, electronics … the list can go on. Brokers can be the jack of many transaction trades and help with many successful transactions. But as a result, they may not build up significant experience and knowledge of a single vertical.

Role of a healthcare M+A advisor

Now let's break down what a healthcare M+A advisor offers to the seller or buyer of a healthcare company. Note: To help with readability, I will focus on what an advisor offers to a seller.

Active from start to finish — and beyond. A healthcare M+A advisor is more of a partner throughout the entire transaction experience, and then some. They are active in the sale process from the initial valuation of a company, through all the extensive work that follows leading up to a company coming on the market, through the bringing in and reviewing of prospective buyers, and through the transfer of ownership. They can advise on any part of the transaction, including valuation, financial, and legal requirements, and help bring on other team members who can assist further in these areas. An M+A advisor will also stay involved after completion of the transaction to help ensure the transfer of ownership is successful and sellers receive any necessary post-close support.

Advisors manage the entire M+A process for a seller, making sure all the boxes needed for a successful transaction are checked (and double-checked). This management helps reduce the likelihood that a critical step is overlooked or not completed properly.

Management by the advisor also enables owners to focus much of their time on the running and needs of their business. Transactions usually take at least several months and sometimes much longer. During this period, it is essential that the business continues to operate as usual. If an owner must allocate extensive time to the M+A process, this increases the risk of harm to the operations and bottom line, and thus the potential sale and sale price. A healthcare M+A advisor who handles the heavy lifting greatly reduces this risk.

Experts in the field. Healthcare M+A advisors tend to be experts in their healthcare field and generally do not work outside of that vertical. They often become advisors after owning and/or operating healthcare businesses in that vertical. This expertise and experience helps a seller and the execution of a successful transaction in many ways.

Communication between advisor and seller tends to go more smoothly since they can speak "the same language." The advisor is also able to identify opportunities for improvement more effectively. Following completion of a valuation, an advisor will discuss the positives and negatives about the business that are affecting the valuation and the avenues that exist to increase the valuation or help a seller hopefully receive an offer on the high end of the valuation. These may be changes or fixes a seller should consider or worthwhile growth initiatives to pursue.

These pre-listing efforts can help ensure the business is in a better position to attract multiple buyers willing to offer higher prices when the company comes to market. This contrasts with a broker, who will generally list a company as soon as they are engaged by a seller.

Larger geography. Healthcare M+A advisors tend to have national and global experience whereas brokers often work in a narrower geography. Broader geographic experience often enables advisors to better understand more of the trends and developments affecting the vertical they serve and attract more potential buyers to a sale of their client's business.

Paid as a percentage of payout. Advisors are generally paid a retainer fee and then a percentage of the total payout (sale price), with the bulk of the payment coming from the payout. This financial model serves as motivation for an advisor to help a seller undertake initiatives that can help increase the sale price. While money is important, the experience an advisor has in the vertical can also serve to help a seller identify the buyer that not only makes a good, fair offer, but is also the right fit for the future of the business — someone who can preserve the company's legacy, maintain high staff and client satisfaction, and preserve other qualities like culture that have come to define the business.

Making a Sound Business Decision for Your Business

A seller typically sells one business in their lifetime. While a broker can help you sell your company, a healthcare M+A advisor may be in a better position to help you sell your company the best way possible. By working with an advisor, you will put yourself in a strong position to make a deal that is the right deal — one you can walk away from feeling like you have passed your business along to the right company and with a payout that reflects the many years of blood, sweat, and tears you put into the company.

At VERTESS, each Managing Director focuses on specific healthcare verticals and brings insights into the ways deal structures should be created for the companies they serve. Please reach out if you have questions about what our team of advisors can do for you or any other matter concerning the future of your business.

Alan 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!

Email Alan Hymowitz or Call: (818)468-7554