By David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC, CAIM
It’s quite common for healthcare mergers and acquisitions (M&A) transactions to include either an earnout or a seller note, or in some cases both. Earnouts are an addition to the enterprise value where buyers seek protection against a potential future decline in company performance post-closing. For example, the buyer may offer the seller future payouts based on revenue growth or an increase in profitability. Seller notes also allow the buyer to offer a higher price and provide the buyer acquisition financing provided by the seller. For example, the buyer may provide the seller with a note that pays principal and interest for several years post-closing.
You might be wondering why a seller would accept either an earnout or a seller note. The answer is that both allow the buyer to offer a higher price to the seller. Earnouts and seller notes are used by buyers to offer sellers a higher price than an all-cash offer. Additionally, both earnouts and seller notes have tax advantages over the cash paid at closing.
Before we discuss the tax advantages associated with an earnout or seller note, let’s first take a look at capital gains taxes.
Capital Gains Tax Example
In a typical healthcare M&A transaction, the seller receives cash proceeds at closing, net of closing-related costs. In an equity sale, the cash received by the seller at closing is subject to federal capital gains tax and state income taxes. The capital gains tax rates for 2025 are as follows:
Tax Rates
Single Filer
Married, Filing Jointly
0%
$0 to $48,350
$0 to $96,700
15%
$48,352 to $533,400
$96,701 to $600,050
20%
$533,401 or more
$600,051 or more
A married seller, filing jointly, would pay zero federal taxes on the first $96,700 in capital gains, followed by 15% for capital gains between $96,701 and $600,050, then 20% for capital gains in excess of $600,050.
Let’s see what that looks like for $5 million in capital gains:
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$5,000,000
$96,700
0%
$0
$503,349
15%
$75,502
$4,399,951
20%
$879,990
$5,000,000
$955,493
As such, the seller would need to pay $955,493 in federal taxes in the tax year of the sale.
Tax Advantage of Seller Note
If, however, the seller accepted $4 million at closing and a $1 million seller note that called for 12 quarterly principal payments of $83,333.33 plus interest at a rate of 7.0%, the capital gains taxes would look like this:
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$4,000,000
$96,700
0%
$0
$503,349
15%
$75,502
$3,399,951
20%
$679,990
$4,000,000
$755,493
Year 1
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$333,333
$96,700
0%
$0
$236,632
15%
$35,495
$333,332
$35,495
Year 2
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$333,333
$96,700
0%
$0
$236,632
15%
$35,495
$333,332
$35,495
Year 3
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$333,333
$96,700
0%
$0
$236,632
15%
$35,495
$333,332
$35,495
Total
$790,987
Instead of paying $955,493 in federal taxes in the tax year of the sale, the seller would pay $755,493. The seller would then pay $35,495 for each of the following three years as the principal portion of the seller note is paid to the seller, for total capital gains taxes of $790,987 (a savings of $164,506). Additionally, the seller would earn $113,750 in interest income that would be taxed as ordinary income.
Tax Advantage of Earnout
The tax advantage of an earnout looks similar to the seller note example above, but it would not include interest income. The difference between seller note capital gains taxes on the principal payments and the earnout proceeds is that sellers don’t always know in advance the amount of the earnout proceeds. For example, a buyer might offer the seller an earnout based on a percentage of incremental revenues for three years post-closing. Neither the seller nor the buyer will know the amount of annual revenue for each of the post-closing three years until the year ends.
Both the seller note and earnout provide the seller with a tax deferral and lower overall capital gains taxes. However, that assumes federal tax rates remain the same in future years.
Sellers must also take into consideration that there is a risk that the seller may not be able or willing to pay principal and interest on the seller's note or that the future performance of the company does not meet the earnout hurdles.
Understanding the Tax Advantages of Seller Notes and Earnouts
I hope this column has provided you with greater insight into the potential tax advantages of seller notes and earnouts. Knowing the potential tax advantages allows sellers to make more informed decisions regarding accepting a seller note or earnout.
Please note that most states tax capital gains as regular income. A seller note and earnout still provide the seller with a tax deferral, which may offer tax advantages for state income tax purposes depending on the overall taxable income of the seller post-closing. Most sellers expect lower amounts of regular income after they sell their business.
Although this column illustrates the potential tax savings of seller notes and earnouts, readers should always seek the advice of a tax professional like a CPA before making a decision on such matters.
Curious about what you should expect regarding the after-tax proceeds for the sale of your healthcare company? Request a market valuation of your business from VERTESS — regardless of whether you're considering selling soon. Knowing the current market valuation can provide insight you can use to better determine the go-forward plan for your company.
A good roadmap begins by knowing where you are today. A market valuation of your healthcare business is a great start to planning for your future.
David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC, CAIM
I am a seasoned commercial and corporate finance professional with over 30 years of experience. As part of the VERTESS team, I provide clients with valuation, financial analysis, and consulting support. I have completed over 400 business valuations. Most of the valuation work I do 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.
I hold 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, and Certified Acquisition Integration Manager (CAIM), issued by Intista. Moreover, the topic of my doctoral dissertation was business valuation.
I 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. I am a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.
Before joining VERTESS, I spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During my commercial finance career, I analyzed the financial condition of thousands of companies and successfully sold over $2 billion in corporate debt to institutional buyers.
I am a former adjunct professor with 15 years of experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.
By: Kevin Maahs, CM&AA and David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC, CAIM
Market demand for veterinary practices is currently very robust. Both strategic and financial buyers are eagerly acquiring private veterinary practices throughout the United States. This increased interest and transaction activity has prompted a similar increase in owners of veterinary practices reaching out to VERTESS to inquire about the current market value of their businesses.
In this article on veterinary practice valuations, "veterinary practices" include clinics, service providers, and hospitals. Before we discuss veterinary practice valuations, it's helpful to take a closer look at what's causing the increase in the demand for these companies.
Rise in Veterinary Practice Transactions
Veterinary practices are considered safe, lucrative, and generally recession-proof investments. Companion animal practices provide cash flow diversity, appealing to private equity and strategic buyers. Veterinary data is valuable for future consumer engagement and marketing. According to HealthforAnimals.org, pet ownership rates — approximately 70% of U.S. households, 60% of United Kingdom households, and 50% of European households — surged during COVID-19 lockdowns. Remote work has fostered stronger pet-owner bonds, boosting spending on products and veterinary services.
According to The North American Pet Health Insurance Association, rising veterinary costs drive pet insurance demand, with this market seeing about 17% growth in North America and more than 6 million insured pets in 2023. Regular checkups, vaccinations, and treatments create stable income for practices. Consolidation opportunities allow larger players to gain economies of scale and regional dominance.
Key Veterinary Practice Value Drivers
To better understand the current value of veterinary practices, let's begin with discussing some of the key performance indicators that buyers are looking for when evaluating potential practice acquisitions.
Key value drivers include the following:
Specialty areas. Shelter medicine, reptile and amphibian, exotic companion mammal, and equine are but a few of the American Veterinary Medical Association's (AVMA) 48 recognized specialties. Specializations create competitive advantages and barriers to entry. Specialization provides an opportunity to offer better treatments and more focused care for complex animal health problems. Specialization also allows practitioners to become experts in their chosen specialty, which fosters enhanced referral relationships. Specialty veterinary practices typically enjoy higher profit margins.
Location. Veterinary practices in urban and affluent areas typically enjoy higher profit margins than rural ones. Lower competition in an area enhances one's client base and revenue. Demographics and income levels of clients influence overall financial performance. Loyal clients with frequent pet care needs create value for the practice. Higher competition diminishes value by reducing the client base and growth opportunities. Areas with little or no competition typically achieve premium valuations.
Facilities, services, staffing, and operations. Modern, well-maintained facilities attract higher valuations. Proprietary or advanced equipment adds a competitive edge. Companies with specialized services, like surgery, or a focus on small animals are in high demand. Diversified services increase appeal and revenue potential. Experienced, qualified, and sufficient staff improve valuation. Practices with multiple veterinarians are more attractive than solo operations. Effective systems for inventory, scheduling, and financial management support profitability. Organized financial records make valuations easier and more favorable. Compliance with licensing and legal requirements affects credibility. Non-compliance significantly devalues a practice.
Staff compensation and turnover. According to IBISWorld, the average cost of wages (not including owner compensation) was 36.7% of revenue. While the percentage of salaries and wages is important, so is employee turnover. Although tenured employees typically receive higher compensation than newer employees, tenured employees often create more value because they have adapted to an organization's culture and possess a strong understanding of the policies and processes, which results in increased productivity (i.e., tribal knowledge).
Pet Insurance. Practices that accept insurance realize higher annual revenue, all other things being equal. According to the AVMA, revenue per patient was 92% higher for insured dogs than uninsured dogs. Moreover, after three years, 81% of insured dogs were at the same clinic compared with 46% of uninsured dogs.
Finally, relative size also matters regarding the market value of veterinary practices. There is a greater appetite for higher revenue, multi-doctor, multi-location veterinary practices. The greater appetite leads to higher offers.
Veterinary Practice Buyer's Industry Considerations
Astute buyers carefully evaluate the risks and rewards associated with acquiring a company. The following key veterinary industry trends significantly influence risk:
Profitability. Buyers prioritize profitability, typically looking at earnings before interest, taxes, depreciation, and amortization (EBITDA) margins as a key metric. Well-run veterinary practices should enjoy an EBITDA margin of 15% to 20% of total revenue. Address high costs (e.g., cost of goods sold (COGS)) or low daily transactions (i.e., average daily turnovers (ADTs)) to improve profitability. Reinvestments should provide measurable return on investment (e.g., equipment like surgical lasers must be utilized effectively). Higher revenue and patient volume indicate strong value.
Number of practitioners. Multi-veterinarian practices are preferred for risk mitigation. Single-doctor practices or those reliant on part-time/relief veterinarians are at higher risk. Revenue generation should not rely heavily on one veterinarian. A balanced patient load across doctors is more attractive to buyers.
Turnover and culture. High turnover of veterinarians or staff raises concerns for buyers. A positive workplace culture eases transitions to new ownership. Proper staffing helps ensure growth and operational efficiency.
Equipment quality. Outdated or poorly maintained equipment reduces practice value. Buyers consider upgrade costs when determining purchase price.
Differentiators. Specialty practices often command higher valuations due to premium services. Modern facilities enhance the practice's competitive edge.
Location. Rural practices face challenges but can thrive with limited competition. Practices in areas with populations exceeding 100,000 are highly desirable. Accessibility, population demographics, and affluence significantly impact value.
Economic conditions. Developments like recessions or booms affect client spending and practice valuation. Resilience to inflation and interest rates is a key factor.
Growth plans. Buyers look for veterinary practices with plans to expand services, increase pricing, and/or develop repeat business. Growth potential signals long-term profitability.
Current Veterinary Practice Valuations
Below is a breakdown of what we at VERTESS calculate as the current estimated market values for veterinary practices based on multiples of adjusted EBITDA; seller's discretionary earnings (SDE), which is EBITDA plus owners' salary(ies) and bonus(es)); and percentages of annual revenue, by revenue size:
Market Valuation*
Annual Revenue$2M to $5M$5M to $10M$10M to $50M$50M+
Multiple of Adjusted EBITDA 4.0x to 6.0x 6.0x to 8.0x 8.0x to 10.5x 10.5 to 13.5x
Multiple of Adjusted SDE 2.5x to 4.5x 4.5x to 7.5x 7.5x to 9.5x 9.5x to 12.0x
Multiple of Annual Revenue 65% to 85% 85% to 100% 100% to 125% 125% to 145%
A well-performing veterinary practice should have an adjusted EBITDA margin of 14.0% to 15.0%, or an SDE margin of 15.5% to 16.5%. As such, a well-performing veterinary practice with $6 million in annual revenue would have a market valuation range of between $5.9 million to $6.2 million.
Note: The above valuation does not include real estate, which must be appraised separately from the practice.
The actual market value is also a function of the (1) quality of offering memorandum and reporting, (2) quality of intermediary representation, (3) historical financial performance of the company, (4) future growth prospects of the company, (5) quality, type, and number of potential buyers, (6) current and projected macroeconomy, and (7) current and projected industry stability and growth, and numerous other factors.
There are outlier market multiples in unique veterinary merger and acquisition (M&A) transactions where optimal buyer/seller synergies push valuations above the norm. Moreover, market multiples change over time depending on the overall economy, regulatory and reimbursement modifications, and industry trends.
Acquisitions of veterinary practices are typically asset purchases, as opposed to equity purchases, and are done on a cash-free/debt-free basis. Sellers typically distribute excess cash balances prior to closing the sale and after paying off all outstanding indebtedness.
What Is Your Veterinary Practice Worth?
If you're an owner of a veterinary practice, you can receive a market valuation from VERTESS regardless of whether you're considering selling your business. Knowing your current market valuation can provide insight into determining your go-to-market plans. Perhaps you're contemplating whether to sell now or five years from now. A good roadmap begins by knowing where you are today. A market valuation of your veterinary practice is a great start to planning for your future.
As a healthcare-focused M&A firm, we at VERTESS help owners understand the expected value of their business if they are to bring their company to market. We'd be happy to provide you with a current market valuation of your veterinary practice.
Kevin Maahs, CM&AA
As a seasoned entrepreneur with 12 years of experience owning and operating a durable medical equipment company specializing in urological and power mobility, I have developed a deep understanding of the industry and the complexities of running a successful business. In 2021, I achieved a significant milestone by successfully selling my business, a process facilitated by the expertise and guidance of Vertess.
Navigating the sale of a company can be one of the most challenging and emotional journeys for any business owner. However, with Vertess’ unwavering dedication, meticulous attention to detail, and seamless process, my experience transitioned from stressful to highly rewarding. This transformative experience ignited my passion for helping other entrepreneurs achieve their goals and maximize the value of their businesses.
Today, I am excited to leverage my firsthand experience and insights to support business owners in navigating the complexities of selling their companies, helping them turn what can be a daunting process into a fulfilling and successful endeavor.
David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC, CAIM
I am a seasoned commercial and corporate finance professional with over 30 years of experience. As part of the VERTESS team, I provide clients with valuation, financial analysis, and consulting support. I have completed over 400 business valuations. Most of the valuation work I do 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.
I hold 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, and Certified Acquisition Integration Manager (CAIM), issued by Intista. Moreover, the topic of my doctoral dissertation was business valuation.
I 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. I am a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.
Before joining VERTESS, I spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During my commercial finance career, I analyzed the financial condition of thousands of companies and successfully sold over $2 billion in corporate debt to institutional buyers.
I am a former adjunct professor with 15 years of experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.
As a Managing Director at VERTESS, which specializes in healthcare mergers and acquisitions (M&A) advisory, I've witnessed the industry's inherent cycles shaped by the likes of economic trends, regulatory shifts, and technological innovations. The latest analyses point to the likelihood of a significant rebound in healthcare M&A as we near the end of 2024 and move into 2025 — and I personally share this sentiment.
At VERTESS, we are seeing an uptick in new clients exploring exit strategies, recapitalization, and growth opportunities, alongside an increasing interest from various buyers and emerging investment groups. I do not believe this revival is a fluke. Rather, it's a culmination of a blend of factors redefining the strategic landscape for healthcare organizations.
Such a bounce back for the healthcare industry would be welcome news, considering the turbulent few years we are hopefully starting to put behind us. Regulatory uncertainties, volatile valuations, and the impacts of the COVID-19 pandemic — which still weigh heavily on some sectors — led to a noticeable slowdown in healthcare M&A activity. Additionally, the dual pressures of inflation and rising interest rates prompted many organizations to tread cautiously with their capital.
However, the following are five emerging indicators that suggest we are on the cusp of increases in strategic healthcare M&A transactions.
1. Market stabilization
Organizations are beginning to regain confidence in their strategic capabilities, which is helping stabilize the market. In addition, clearer regulatory guidelines, in areas such as telehealth and value-based care, are fostering a more stable environment that would appear ripe for M&A activities.
2. Consolidation trends
The healthcare sector continues to undergo a significant consolidation phase — and evidence points to this period continuing for some time, even with some consolidation efforts receiving increased scrutiny. Buyers are seeking opportunities to enhance their operational efficiencies and achieve economies of scale.
3. Technological advancements
The pandemic further accelerated the adoption of digital health technologies, thus fundamentally reshaping our industry. Companies specializing in health tech solutions, including those using artificial intelligence and machine learning, are becoming highly sought-after acquisition targets, both because of their results to date and their perceived long-term value. The integration of innovative solutions represents an opportunity for traditional healthcare providers to improve patient outcomes and operational efficiency while differentiating themselves from competitors and potentially capitalizing on the continued movement toward value-based care.
4. Private equity involvement
The recent lull in M&A activity has resulted in private equity firms accumulating substantial capital reserves. We see that the firms are eager to invest and have a growing interest in doing so within healthcare. These firms, which are often focusing on long-term value, are well-positioned to drive a new wave of consolidation. In 2025, I expect elevated consolidation in more fragmented markets like home health, behavioral health, and outpatient services, to name a few.
5. Focus on value-based care
The ongoing transition to value-based care models is prompting some healthcare organizations to pursue partnerships specifically aimed at enhancing care coordination and improving patient outcomes — two key contributors to value-based care success. We are seeing how M&A can lead to innovative care delivery models that enable healthcare organizations in value-based care arrangements to meet the evolving expectations of payers and patients.
My Strategic Healthcare M&A Outlook
Recognizing that 2025 is likely to see a resurgence in M&A activity, I believe stakeholders across the healthcare spectrum should begin preparing now — if they haven't started already — to capitalize on the growth in transactions. Organizations must prioritize initiatives that support efforts to identify strategic partnerships that align with their long-term objectives, bolster their competitive positioning, and enhance patient care.
The cornerstone of successful healthcare M&A lies in meticulous due diligence and developing a concrete understanding of the strategic rationale behind potential deals. Healthcare executives would be well-served to collaborate with seasoned M&A advisors who can provide invaluable insights into market trends, help identify suitable targets, and facilitate negotiations that yield fair value for all parties.
When I read the tea leaves, I see a healthcare M&A landscape that stands on the precipice of revitalization, driven by market stabilization, technological innovation, evolving care delivery models, and other influences. As we approach the end of 2024 and transition into 2025, organizations that remain agile and proactive in their strategic planning will be ideally positioned to seize the opportunities that lie ahead. In this dynamic environment, the role of M&A advisory will be essential in navigating the complexities of transactions, helping ensure that healthcare organizations not only survive but thrive.
Anna Elliott, CM&AA
With over 15 years of experience in healthcare technology, post-acute care, hospice, and urgent care, I am a highly experienced healthcare executive. I have successfully supported numerous private equity roll-ups and exits in the home healthcare sector. My extensive knowledge of the healthcare industry and my leadership in the M&A community, as a certified M&A Advisor (CM&AA) and member of the Executive Committee of the Chapter of the Association for Mergers & Acquisitions Advisors (AM&AA), distinguish me from others in the field.
Throughout my career, I have specialized in healthcare and have excelled in attracting healthcare technology firms and industries that are growing through Mergers + Acquisitions. I have a strong ability to target specific needs and opportunities in the business supply and demand process, resulting in over $150 million in value delivered to organizations.
As a co-founder of M&A Finders, a boutique Merger and Acquisition advisory firm in Pittsburgh, I have been able to pursue my passion for advocating on behalf of buyers and sellers in achieving their M&A goals. I am excited to bring my skills and network to VERTESS, where I have access to the necessary resources to further expand my impact in the healthcare industry.
We can help you with more information on this and related topics. Contact us today!
FORT WORTH, Texas, Oct. 2, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, was recently named the #1 lower middle market sell-side M&A advisor on Axial's (http://axial.net) 2024 Healthcare Top 50 list. Axial is a private deal network serving professionals who own, advise, and invest in North American companies. The list features the top 50 most active and sought-after members who worked on transactions across various healthcare sectors over the past 12 months. VERTESS was recognized for the number of deals brought to market and the level of interest those deals received in the network.
VERTESS is also pleased to welcome senior healthcare executive Christine M. Bartel to the team as a Managing Director. Christine has nearly 30 years of healthcare experience and has held impressive administration and executive leadership positions in which she was responsible for clinical compliance, care coordination, and operational efficiencies, including financial integrity and growth strategies.
Previously, Christine started Hope at Home, Inc. and Aspire Home Care, a private duty agency and skilled home care agency, respectively, in Colorado. Serving as the CEO, she supervised a staff of approximately 350 caregivers, established two branch locations in Colorado Springs and Fort Collins, and ultimately sold the companies to a private equity firm in 2008. Post transaction, she launched an independent consulting practice that acquired underperforming health care entities, delivered strategic guidance and an array of management services to diverse healthcare organizations, facilitated with interim/long-term senior leadership operational turnarounds, joint ventures, facility expansion, service line development, and mergers and acquisitions. She has coached health system executives, physician groups, assisted living facilities, skilled nursing facilities, insurance companies, and post-acute organizations. Christine was also the Executive Producer and Host of the popular CBS News (KCNC) program, "Aging Independently with Christine Bartel."
Christine earned a bachelor's degree in economics with a premedical emphasis from the University of Colorado Boulder. She also received an MBA in health care administration from George Washington University in Washington, D.C. In 2012, she received her Certification as a Senior Advisor (CSA). She was the recipient of the women-related Corporate Social Responsibility/Bronze Stevie Award in 2018, was featured on the Inc. 5000 list of the fastest-growing private companies in America (ranking 1908 out of 5000) in 2018, and was honored as the Female Executive of the Year/Gold Stevie Award Winner in 2017.
"After years of directly providing healthcare supports, I believe my skills and experience offer a critical advantage to other healthcare leaders considering their next steps. I am keenly aware of the daily struggles owners have to maintain high-quality care while also managing the daily operational demands," Christine noted. "The opportunity to work with VERTESS was an easy decision. We are aligned in our commitment to helping people achieve success."
Vaughne Glennie, Managing Partner of VERTESS, commented, "Christine's passion for her work is admirable. After building two successful healthcare companies on her own, she never wavered from her commitment to the individual. She believes that with proper knowledge, educational outreach, and resources, anything is possible. Her clients have a formidable ally with her guiding a transaction process."
For more information, please contact Vaughne Glennie at 384185@email4pr.com or +1.520.395.0244.
Volume 11, Issue 14, July 30th, 2024
By: Bradley Smith
When we are approached by healthcare business owners contemplating a sale and researching their options for assistance, a common question we're asked is: "Why should I hire a specialized healthcare mergers and acquisitions (M&A) advisor for my company?"
The simple answer is that an M&A advisor who specializes in healthcare is more likely to help owners achieve successful transactions, with "success" including a fair sales price and the passing along of the business to a company that will continue to treat staff and customers well.
9 Reasons to Work With a Healthcare M&A Advisor
For a more complete answer to why healthcare business owners should work with healthcare M&A advisors, here are nine reasons.
1. Leveraging extensive experience
A healthcare M&A advisor generally has experience in representing companies in various healthcare verticals and broad knowledge of the healthcare industry. This will help a business owner prepare for the sales process with insights about the owner's unique market. When the advisor is part of a larger healthcare M&A advisory firm, like VERTESS, they are further supported by other advisors and experts who can share additional insights.
2. Improving the selling process
Selling a healthcare business is a complex process filled with multiple tasks that can be overwhelming and often underestimated by owners given that most have not experienced the sale of a company before. Simultaneously, a healthcare business owner is typically busy running their company, which limits the amount of time and energy that can be allocated to the sales process.
Bringing aboard a healthcare M&A advisor can smooth the transaction process while better ensuring a high return on investment. There are always obstacles and bumpy roads in the process of selling a healthcare company, but a savvy advisor helps sellers navigate them and avoid the many reasons transactions can fail to secure a successful agreement with a buyer or investor.
3. Maximizing healthcare business value
A healthcare M&A advisor will be able to market the healthcare company to more targeted buyers, and this will often lead to more high-quality partner options for the seller. More value could mean creative strategic partnerships, maintaining the owner's legacy, retaining a core management team, and higher price and/or better terms in the sales agreement.
4. Integrating healthcare knowledge into marketing
Effective healthcare M&A advisors integrate their knowledge of a specific healthcare vertical and broader healthcare industry knowledge into their marketing approach. Utilizing established industry relationships and networks, a healthcare M&A advisor can connect sellers with buyers and investors that have the highest appreciation for the seller's market segment and potential value of their business.
5. Showcasing value
Through their many years working in the healthcare industry, a veteran M&A advisor has learned what financial analysis and presentation will resonate most with potential buyers. As a result, they will make sure that marketing materials feature a professional financial analysis that contributes to the highest valuation.
6. Painting a complete picture
Skilled healthcare M&A advisors generate a confidential information memorandum (CIM) — otherwise known as "the marketing book" — to tell a healthcare company's story to prospective buyers. The CIM includes information that speaks to significant areas of interest for buyers, such as successes, differentiators, growth opportunities, local market dynamics, and larger healthcare market trends. The completeness of the CIM is usually correlated to the healthcare M&A advisor's understanding and experience and their ability to tell the compelling story of the healthcare business and its owner(s).
7. Managing the healthcare transactions process
Competent healthcare M&A advisors will manage a sales process in which various buyers are screened by level of interest, commitment, and financial qualification to complete a fair transaction. Within their networks, healthcare M&A advisors often access unique market intelligence to assist them in their representation and execution.
8. Closing the deal
Healthcare M&A advisors often know about unique, market-related nuances that will help with the final negotiation of deal terms. This understanding can help guide the business owner through escrows, non-compete or interim management agreements, and other critical decisions on the way to a successful sale.
9. Delivering value
The ninth and final reason to work with a healthcare M&A advisor — delivering value — is a composite of the above. In a time of much turbulence and opportunity in today's healthcare industry, an accomplished healthcare M&A advisor often brings value that far exceeds their fee while helping sellers reach the goals that were established prior to starting the sales journey.
VERTESS: A Top Healthcare M&A Advisory Firm
If you're contemplating a sale of your healthcare business and are looking for a partner that can help you achieve your sales goals, reach out to VERTESS. Our team of Managing Directors, who specialize in specific healthcare verticals, has the extensive healthcare transaction experience that leads to more successful sales. This track record recently helped us earn the distinction of being named the #1 lower middle market investment bank for the first quarter of 2024 by Axial, and I was proud to be recognized as the advisor for one of Axial's top 8 deals in 2023.
To learn what VERTESS advisory services can do for you and your healthcare business, reach out to us today!
Bradley Smith ATP, CM&AA
For over 20 years I have held a number of significant executive positions including founding Lone Star Scooters, which offered medical equipment and franchise opportunities across the country, Lone Star Bio Medical, a diversified DME, pharmacy, health IT and home health care company, and BMS Consulting, where I have provided strategic analysis and M+A intermediary services to executives in the healthcare industry. In addition, I am a regular columnist for HomeCare magazine and HME News, where I focus on healthcare marketplace trends and innovative business strategies for the principals of healthcare companies.
At VERTESS, I am a Managing Director and Partner with considerable expertise in Private Equity Recapitalizations, HME/DME, Home Health Care, Hospice, Medical Devices, Health IT/Digital Health, Lab Services and related healthcare verticals in the US and internationally.
We can help you with more information on this and related topics. Contact us today!
FORT WORTH, Texas, July 24, 2024 /PRNewswire/ -- As healthcare-specific merger and acquisition (M&A) advisors, VERTESS (https://vertess.com/) has been asked frequently by healthcare business owners "How is the market in 2024?" and "Is now a good time to sell my company?" We understand that most owners believe they must wait until the market tea leaves reveal the optimal time to sell to secure the best price. In response, we can speak to significant macro conditions, such as interest rate activity, inflation shifts, and global events. Those all will generally have an impact on prices of transacted companies. However, the far more critical indicator for when a sale is optimal will always be when the owner is ready to move on to whatever is next in life.
At VERTESS, we recognize that owners are likely the most important person to the business. They are its biggest cheerleader. They have invested more in it than anyone else, so they typically will make the biggest and greatest impact on the business. If owners wait to try to time the market or take advantage of some other perceived opportunity, they run the risk of souring on the business and becoming burned out or disenfranchised. If that happens, the business is going to suffer, and that will likely lead to a decline in sales price.
Of course, interest rates continue to be a substantial issue affecting healthcare businesses. They are high and the Fed isn't likely to start reductions until the end of this year or the beginning of 2025 due to sticky inflation and a strong labor market. If an owner wants to get a bank loan for their business, they're looking at 10-plus percent. How has the market responded to rising interest rates? Bank loan activity has slowed, and people are deploying more equity. Private equity firms are maybe doing one or two turns of debt equity, with the rest of their payment coming out of pocket. Two years ago, when interest rates were about half of what they are now, these firms might do half a deal in debt.
Buyers find a way to evolve to what's happening in the market and buy the businesses they want to acquire. Buyers, especially strategics, bake acquisitions into their growth strategies. It's their "buy-and-build" strategy. Buyers know they're going to grow organically every year at X rate, and then they plan for inorganic growth at a certain rate, which is accomplished through acquisitions. Inorganic growth is typically identical to, if not larger than, organic growth rate.
Regardless of the market today or what's projected over the next 12-plus months, buyers are going to set acquisition mandates and work to achieve them. Buyers need to buy companies to scale their businesses. It's part of part of the fabric of their operations and what they're used to doing — and that's not going to change, regardless of what's happening nationally and internationally.
"Ultimately, owners should know what's happening in the market as this can affect matters like budgeting, staffing, and purchasing. But when it comes to selling your company, don't let what is happening in the market influence your plans. The risks of doing so far outweigh any potential benefits," cautions VERTESS Managing Director/Partner Bradley Smith. "If you own a successful business, you should be able to find a buyer and one that offers you a good, fair price, regardless of what's happening in the market. The key to a successful sale is to run a proper process that results in all interested buyers — and the right buyers — coming together simultaneously and making their best offers. That's how you'll know you're getting the best price for your company."
For more information, please contact Vaughne Glennie at 380788@email4pr.com or +1.520.395.0244.
FORT WORTH, Texas, July 16, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, is pleased to announce the successful completion of a third pharmacy deal this year. This deal closely follows two additional pharmacy transactions completed in Q2.
Keystone Specialty Pharmacy (https://keystone-pharmacy.com/), a customized, specialty pharmacy out of Mississippi, was purchased by Novastone Capital Advisors (NCA) (https://www.novastone-ca.com/index.php), a Switzerland-based private equity firm, as part of their Entrepreneurship through Acquisition (ETA) Program. Keystone prides themselves on offering health care providers new resources to treat serious infections while also being committed to maintaining the highest ethical standards in business. Dr. Lisa Piercey, NCA's Entrepreneur, will lead the pharmacy as it continues its mission of providing critical care.
The transaction was overseen by VERTESS Managing Director, Alan Hymowitz, who previously owned and operated a pharmacy before his tenure at VERTESS. His unique background was invaluable in leading this transaction to a successful conclusion. He noted what a demanding and lengthy process this transaction was, but that he is thrilled for his clients to see this deal across the finish the line.
Keystone owners, Jeffrey and Kim Clark, reflected on the transaction process sharing, "Alan Hymowitz and the team from VERTESS understood the importance of finding a strategic investor who would continue our mission 'Our goal is to heal and not refill.' VERTESS found the ideal fit for our pharmacy, one who we have confidence will take care of our patients with excellence while expanding the business we started. We are extremely grateful to Alan, David Coit, and the rest of the VERTESS team for their diligence and expertise in bringing our deal to close. Their guidance through this process has been a blessing to us both."
For more information, please contact Vaughne Glennie at 380413@email4pr.com or +1.520.395.0244.
Volume 11, Issue 9, May 21, 2024
By: Miriam Lieber
Most successful companies reach points in their history where big decisions must be made that will determine whether these companies largely remain the same size and stay on their current course or undertake significant changes — and usually investments — that lead to a transformation in size and services. Successfully executing this transformation isn't typically easy and often introduces big risks to the viability of the company. For businesses that want to grow, taking risks is a necessity. Fortunately, business can also take steps to reduce the likelihood that these risks will backfire and potentially stifle growth or even cause financial harm.
In this column, I will discuss three types of companies — small, mid-sized, and large — and share key considerations for business owners and operators as they work to successfully move their companies up the growth ladder. Discussions of each company type will be accompanied by a real example of such a company that reached a significant growth turning point and the advice I provided or will be providing that can help turn risk into reward.
Smaller Companies
Let's start with a discussion of smaller companies, and we will define them as companies with revenue between $1 million and $20 million. These tend to be very service-forward companies that often cater to the whim of referral sources and are known in their communities as companies to go to when you want to work with somebody who cares.
That's not to say a larger company can't be a company that cares, but smaller companies tend to have that reputation. In addition, the competitive advantage and differentiator for a smaller company must be its service level — almost bar none. We are in an extremely mature industry that has been on the consolidation trail for a long time. This tells me that if you're a smaller company that wants to stay profitable, flourish, and grow, you need a service component that is your raison d'être.
I recently worked with a small(ish) home medical equipment (HME) company that specializes in diabetes care. It has a few branch locations. The company is known in its community as the company that will be there when push comes to shove. That's their best asset but also their worst detriment because they are known to be the go-to source for everything and anything.
This company recently decided to take on continuous glucose monitoring (CGM) as its next best product area of interest. The service line is being built by a few of the company's core staff members, and it is rapidly taking off. What this tells me is the company is ready to step outside the proverbial small "ma-and-pop" box and into a landscape where it will be able to achieve significant growth.
That's good news for the company, but it presents a big challenge. What they are contending with now is how to tell the community that the addition of this service line and its associated growth will require the company to pull back on being everything to the community all the time. The company still intends to help its customers with anything related to diabetes care because that is its area of specialty, which is supported by a pharmacy. But now the company will be focusing on the CGM line coupled with its CPAP business and other durable medical equipment-related items. That means changes are coming, including only providing one-off items within reason and needing to dropship items like a walker rather than personally deliver it. Alternatively, patients can drop by to pick up their equipment. It may also mean longer times between appointments for homebound CPAP patients and/or a need to deliver equipment and training remotely. And it means that for services that fall outside the company's wheelhouse, the business will refer customers to someone else.
One of the lessons learned for this small — and soon be a mid-sized — company is the importance of determining how to maintain a local feel without needing to be everything to everybody. That is requiring them to focus on the positives — the areas where they can excel as a business — and reduce or eliminate the negatives — the areas that do not make sense for the business. In other words, this company is cleaning up its house, making sure that what people see reflects the business in an accurate, positive way, and eliminating the nonprofitable products and business practices, with very occasional exception.
Mid-Sized Companies
Now let's move to mid-sized companies, which we'll say are those generating between $21 million and $100 million in revenue. They have many locations. They have good processes in place to support the business and growth, but now as they are scaling up and getting closer to becoming large companies, what they need is to become more consistent in the way they run their business.
What do I mean by this? For mid-sized companies, something that often gets overlooked is the notion of being centralized. This can be difficult because mid-sized companies have grown from the successful smaller companies that had a local feel and presence, but now with the larger contracts they have with insurance companies, these mid-sized company must be more consistent in the way they do their business across the enterprise. They must create "by rote" functions, to some extent. They must promote centralization of functions such as purchasing, for example. To further scale the company, non-routine or exception tasks should be reserved for leaders or higher skilled staff.
The challenge and opportunity here is how to achieve this consistency and continue growing without needing to add significant additional human resources that can cut into profitability. This points to the need for automation. Mid-sized companies must explore how to use automation and to begin exploring machine learning in ways they have not yet entertained.
Quickly emerging are the many companies offering services powered by machine learning. Mid-sized companies must start to look at these companies and their services as potential ways to continue to meet payer contract expectations and then be able to scale the company without needing to add extensive resources.
Consider that to handle orders that come in, mid-sized companies generally rely on people to process them. Sometimes that work is performed in-house; sometimes it's outsourced. But in either situation, it's a people-driven process. A person needs to go through the documentation with each order and find the chart note, the prescription (medical necessity form from the treating practitioner, and the other item-related documents. Then they need to electronically file these documents accordingly.
With machine learning, technology can do this work, with the solution essentially becoming the "fax wrangler." This doesn't eliminate the need for people. Rather, you take your really good processors and have them teach the machine what it needs to know and then have these people manage the machine and ensure the work is completed appropriately.
In a mid-sized company consulting engagement last year, one of the tasks I was charged with was coming up with a way to make more consistent use of their people. To do so, we centralized various responsibilities. For example, we created a centralized phone team. That was step one, and a valuable step that will help achieve consistency. What I find fascinating is a next step where the company would investigate how the use of machine learning may be able to reassign people on that phone team.
Let's say this phone team receives frequent questions about the status of a new order. Machine learning (also referred to as "digital experience" by some) should be able to proactively automate a text message to patients that confirms receipt of the order from their doctor, stating an update will follow within 48 hours. While this won't eliminate all calls about new orders, it should greatly reduce the number of calls that come in for order status and thus the number of people who need to answer these calls. In cases where automation is employed, companies have been able to reduce the number of inbound calls for order status by 75% or more.
The best places to start looking at where you should first work to incorporate machine learning are those aspects of your operations requiring the most human resource time, which are likely some of your largest cost centers. Once you've identified these pain point areas, determine what opportunities exist to introduce automation and eventually add machine learning to power this automation. This undertaking is one way to create a much easier and more consistent landscape for a mid-sized company to grow to the next level.
Large Companies
Now let’s discuss our final group: large companies with revenue greater than $100 million. These are businesses that are moving from being a regional player to a national player or a regional player moving into a new region. This growth is complicated because it often occurs through acquisitions, so now you are looking at melding different companies together. These companies have their own way of running their operations, with leaders who have had roles defined based on needs, personality, and demographics of a company. Following the acquisition, these leaders and managers are now being told that the way they have worked and the work they have done will need to change. Those can require difficult conversations and difficult changes.
What a large company needs to do is essentially look at each of the processes for the various companies now part of the larger entity and determine which ones perform the strongest and where large holes exist that need to be filled. For example, let's consider a company that has one contract that does not allow offshore billing and one contract that permits it. The company will want to look within its expanded operations to identify individuals who can champion these distinct efforts. Maybe Susie's company in Kentucky had a fantastic offshore company partner achieving great results. You might want to use Susie and her experience to champion the offshore billing efforts. For payers that do not permit offshore billing, you might find that Bobby's company in Rhode Island had impressive in-house billing performance, so he would champion that effort for the organization.
In larger companies, you typically have defined centers of excellence based on product mix and payer mix within each product. For example, you may have a large HME company with a center of excellence for urological and ostomy supplies and a separate center of excellence for CPAP and CPAP supplies. These centers of excellence are formed by larger companies dividing up the companies they've acquired first by their strengths (in revenue and collections), second by payer (contracts) that dictate how they are going to run their business, and third by product mix.
This brings me to a large client example and how this mindset would play out. One of my large clients recently finished a significant sized acquisition. But the post-acquisition transition is not going as well as they had hoped. Timely payments aren't as seamless as they had been previously because the companies haven't been merged well yet. People who are doing day-to-day work have been tasked with trying to merge the companies, but the work is just too much, and these people cannot focus on their daily tasks and simultaneously handle the merger tasks.
One recommendation for this large company is to assemble a dedicated mergers and acquisition transition team. If this large company is going to continue to pursue acquisitions, which I believe it will, now the company will have a dedicated team to handle merger-related functions, which would include creating centers of excellence.
An important caveat to using a transition team is the need to stay nimble and consider when growing the team would be worthwhile. Perhaps an acquisition necessitates the merging of software. If your transition team lacks a specialist in merging software, you will want to find this talent and add it to the team or use an outside contractor with this specific experience.
Once you have completed a merger, then a large company should further evaluate processes and determine what changes will help it get the biggest return on investment (ROI) based on payers and product mix. Do this by evaluating the best practices of each of the merged companies, including the original company, and determine the ROI from there.
Key Takeaways
I've covered a lot of information here, so I want to conclude by summarizing what I think are some of the key takeaways. For small companies, you must understand the nuances of going from ma and pa to the next stage where you are not and cannot be everything to everybody anymore. You must decide what you want to be "when you grow up." You still need to have a local feel, but inside your operation, your guts must be run much more efficiently.
When you get to the mid-size level, you need to rely on software to scale your company and find those people who will champion this cause. When you have the right people managing the optimal solutions that introduce automation, you will still be able to deliver an exceptional customer experience and achieve success. Lean on your heavy hitters when scaling your capabilities through automation and machine learning.
Finally, when you become a large company and are on an acquisition trail or you have completed an acquisition, you must understand which of the companies is better at payer and product mix integration. Then you must look at how you're going to fit in together as one team. A transition team that can effectively prioritize getting two distinct businesses combined will greatly help in that cause.
Regardless of your size, stay focused on your core competencies and best practices, then plan ahead and pivot as necessary to continue to flourish and profit in the ever-changing healthcare landscape.
Miriam Lieber President, Lieber Consulting LLC
Miriam Lieber is a principal consultant and trainer specializing in home healthcare revenue cycle management. Her extensive experience with Medicare and other third-party payers has brought her national recognition in the homecare industry. With over 25 years in the homecare field, Miriam has consulted with over 500 HME companies nationwide and is a featured author of many articles in the areas of operations management and leadership. She is also a nationally known speaker for many homecare trade associations. She can be reached at 818-692-1626.
Volume 11, Issue 7, April 9, 2024
By: David Purinton
If you own a healthcare company, you are probably receiving inquiries from interested buyers. We view this as buyers marketing themselves to you. At VERTESS, we emphasize the importance of clients marketing their company to buyers as a key step in securing the eventual right buyer and partner.
With potential buyers coming and marketing to you, why should you put in the time and effort to market to potential buyers?
To answer this question, it's helpful to take a step back and understand the current market for sellers and buyers, specifically focusing on the lower middle market. This market has the vast majority of operating companies since most companies have under $150 million in enterprise value, as the following chart represents:
Given the volume of potential targets, there are more investors in the lower middle market than you can probably imagine. The role of these investors (i.e., buyers) is generally to acquire founder-owned companies, professionalize them, scale them organically and inorganically, integrate them, and then sell the larger entity to the next investor. The acquired company scales up as it passes through the hands of various investors.
These investors are financially motivated to market themselves as the appropriate buyer for your company. After all, they stand to make millions of dollars when their acquisition and subsequent growth and transaction strategies succeed. They're aggressively trying to find companies to buy and then execute these strategies.
Buyers view their outreach efforts as a sales cycle. They reach out to X number of business owners, hope that Y number of business owners will engage in discussions about selling their companies, and then the buyers weed out the companies they don't want to own, ultimately acquiring Z. In this sales cycle, buyers are essentially in control.
Owners who market to potential buyers take control of the sales cycle — one that's very similar to the cycle executed by buyers. Owners, usually supported by healthcare M+A advisors like those at VERTESS, reach out to X number of potential buyers and hope that Y number of buyers will engage in discussions about buying the company. Owners and their M+A advisors then weed out the buyers the owners don't want to sell to. The remaining options are engaged in discussions about the potential acquisition, ultimately concluding with the owner signing an agreement with Z.
The Value of Control
Putting the power on your side of the equation matters. Consider the following reasons:
More likely to find the right fit. There are several thousand healthcare investors. Not everyone is going to be a good fit for your company. In fact, most will not. Similarly, a random buyer is not likely to magically be the right fit for you. When you control who you market your company to, you are more likely to market toward companies perceived as potential good fits.
Investors will know you're ready to sell if you're marketing to them. This increases interest and reduces risk. When buyers find potential targets by marketing to companies, the investors usually do not know how willing a seller is to sign a contract. Given the costs of due diligence, that lack of knowledge presents a six- or seven-figure risk.
However, when an owner markets to buyers, investors feel more comfortable spending money in due diligence since they know the owner is more likely to sign the contract at the end of the process. The appearance of an owner interested in at least considering a sale attracts a greater number of investors.
Likelihood of better results. When you can identify multiple potential buyers who might be a good fit for your company, you put yourself in a position to leverage the interest in your asset to negotiate up valuation and terms. You cannot do this without leverage, as buyers aren't interested in spending more money to acquire your business unless they have competition — and competition perceived as legitimate and strong.
Tips for Buyers
While we understand the strategy, we respectfully ask that you stop showing premium valuations in your letters of intent (LOI) to unrepresented sellers. You may not see it as a bait-and-switch tactic, but that's exactly what the seller experiences, and they leave the process believing the initial offer is still achievable with someone else. Even if re-trading has worked for you in the past, this is the kind of tactic that makes sellers skeptical of any buyer.
If you're looking for off-market deals, be prepared for the time and effort required to achieve a discount. First and foremost, develop the relationship before discussing valuation. If the seller asks for an indication of value too soon, you probably know it's not going to the finish line. Cut bait and move on until you find a potential seller willing to spend time forming a relationship with you that can eventually be leveraged into a sale.
If you haven't already done so, create a pre-LOI request list and open a data room. You should have about 75% confidence in a deal before signing an LOI. Submit an LOI that you would submit to an M+A advisory firm like VERTESS. Start with a cash deal you're prepared to execute, then add structure if there's a valuation gap. It's difficult to re-trade down.
Meet With Me at TCIV
I'll be attending TCIV East in Palm Beach Gardens, Florida, from April 15–17. If you will be attending this conference and are interested in meeting up to discuss the topics covered in this column or any other issue concerning M+A, please reach out to me using my contact information below.
Here to Help
If you're an owner thinking about selling, contact the M+A team at VERTESS. We're specialized healthcare advisors who help our clients with exit planning and executing that plan, including marketing directly to those buyers likely to be a good fit for your company and serious about executing an acquisition. We'll help you determine the right path forward for the sale of your business and then do much of the heavy lifting that typically ends with a successful transaction.
David Purinton MBA, CM&AA
After working in M+A advisory and corporate financial consulting, I was fortunate to co-found Spero Recovery, a provider of drug and alcohol recovery services with over 100 beds in its continuum of residential, outpatient, and sober living care. As its CFO I led the company to significant revenue and margin growth while ensuring it adhered to the strictest principles of integrity and client care. After selling Spero I remained in leadership with the buyer as its CFO and quickly realized accretion and integration. Of the myriad lessons not learned while earning my MBA with Distinction in Finance from a Tier 1 university, the most profound was the importance of investing in my staff and clients. I learned that the numbers on a spreadsheet represent humans, families, and dreams, which was a radically different paradigm from investment banking.
At VERTESS I am a Managing Director providing M+A and consulting services to the Behavioral Health, Substance Use Disorder treatment, and other verticals, where I bring a foundation of financial expertise with the value-add of humanness and care for the business owners I am honored to represent.
We can help you with more information on this and related topics. Contact us today!
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!
Want to stay current with trends in the medical/healthcare space as well as receive expert advice of veteran medical entrepreneurs?
SUBSCRIBE TO OUR BI-WEEKLY NEWSLETTER VERTESSPRESS
For over 10 years, we've been teaching ways you can improve the value of your healthcare company, focusing on informing you about mergers + acquisitions, including M+A trends in the healthcare market.
