Are PEGs Knocking At Your Door? 6 Ways To Make It Happen

By Brad Smith, ATP + Tom Schramski, PhD, CMAA

Volume 1 Issue 21, November 10, 2014

unnamed (1)In today’s marketplace, we see the growing presence of private equity groups (PEGs) as buyers of lower middle market healthcare companies. PEGs have increasingly moved “downstream” to smaller companies with adjusted EBITDA as low as $500,000.  This has increased the opportunities for smaller companies as long as they understand that the “buyer eyes” of PEGs can be quite different from those of more familiar strategic buyers.

While each PEG is unique, they often share much in common: a desire to keep existing management in place, a focus on creating a new platform for further acquisitions or a “tuck in” to complement an existing platform, and the intent to grow a business quickly to conform with a four- to seven-year investment timeline.

Given these parameters, here are some practical ways you can make your business more attractive to a PEG:

  • Have a strong management team in place – PEGs often place as much value on your team’s potential for even greater success (the future) as financial performance to date (the past).
  • Present a clear path to success – PEGs may be less knowledgeable about your market dynamics than a strategic buyer, but your ability to project an understandable picture of the future (e.g. business plan) increases your credibility and, ultimately, your value.
  • Build the right product/service base – Whether products like CPAP (sought in the DME market) or services like specialized interventions for children with an autism diagnosis, having a desirable offering with future potential increases your attractiveness.
  • Nurture organic scalability – Enhance your options and opportunities to grow even though you may not choose to act aggressively on them for good reasons like limited cash flow.
  • Identify opportunities to grow through acquisition – Specifically identify what could be horizontal (companies with services/products like yours) and vertical (complementary companies) acquisitions. Again, you may not choose to act on these possibilities, but knowing about them is part of presenting a path to success.
  • Be articulate about your strengths and weaknesses – Every business has competitive advantages and disadvantages and being honest about them helps a PEG representative assess the opportunity.

If you consider these practical steps apart from a potential PEG buyer, there is still huge value for you and your healthcare business.  You are focusing on a strong foundation for the future and that is attractive to everyone.