When Timing Makes A Difference: 3 Critical Elements In Executing Your Transition

By Brad Smith, ATP, CMAA

Volume 2 Issue 6, March 17, 2015

tt152-4f66846b-b0a9-4568-877b-3b06d3e3379d-v2As the legendary New York Yankee Yogi Berra once said, “You don’t have to swing hard to hit a home run – if you get the timing, it’ll go.”  Timing is an often misunderstood concept – it’s not about perfection, it’s about aligning critical elements in the decision-making process and then acting with discipline.

The current healthcare marketplace is filled with entrepreneurial opportunities and many business owners are considering whether the time is right for their exit.  Each circumstance is unique and there are three important factors that today’s healthcare business principals are considering before finalizing their exit plans:

Is my business ready for external scrutiny?

Contemporary buyers are more sophisticated than ever and are increasingly likely to ask for good quality data prior to completing a Letter of Interest (LOI).  This can be unsettling, for example, to a DME owner with a strong clinical background, who may interpret the request as a personal affront rather than what it really is – a competent buyer trying to carefully weigh the cost benefit of a purchase that, on the surface, is a good strategic fit.  An experienced advisor can help you methodically prepare your company to provide a great first impression.

Are current capital markets favorable for transactions?

The days of ever-present cash flow lending from a decade ago have been replaced by the rising influence of private equity groups (PEGs) and a more unique blend of equity, debt, and other forms of financing.  The added positive factor:  most of today’s strategic and financial buyers, including family offices, have a lot of dry powder (aka cash).  In some ways, the sources of financing have never been more diverse and creative.

Am I really ready for an exit?

This is ultimately the toughest question for most sellers and should be thoroughly evaluated on multiple levels with qualified assistance in determining basic financial requirements for your family post-transaction.  One of the exciting options available with the growth of PEGs is continuing as an executive in your healthcare business with the opportunity to increase your financial benefit post-closing as the company continues to grow.  This “earnout” approach can be extremely attractive to a younger Baby Boomer owner who is not quite ready to retire and has the opportunity to use someone else’s capital to strategically expand a business, while increasing their proceeds post-transaction.

With the three elements above in reasonable alignment, a seller can find multiple ways to achieve personal and professional goals for ultimate success.  As Yogi Berra observed, it’s about the timing.