The rapid growth of the GLP-1 market has brought this natural-hormone-turned-medication into the spotlight, fueling discussion and speculation. As a result, VERTESS has received ongoing inquiries about how GLP-1 drugs impact pharmacy valuations and what pharmacy owners should consider when evaluating their business's future — including the potential for a sale.
To assess the likely effects of GLP-1 on valuations, it's essential to first understand the current state of the market.
GLP-1 Market Update
More than 100 million adult Americans are currently living with obesity, with more than 22 million having severe obesity. Between January 2018 and June 2024, nearly 1.2 million patients were prescribed a GLP-1 receptor agonist, accounting for a total of more than 4.8 million prescriptions during that time. U.S. pharmacy prescription dispensing revenue reached $683 billion in 2024, with GLP-1 agonists contributing to more than 80% of the growth.
It is reported that about 12% of Americans have used GLP-1 drugs, with around 6% currently using GLP-1 medications. Four GLP-1 drugs, including Eli Lilly and Co.'s Mounjaro, Novo Nordisk's Ozempic and Wegovy, and Lilly's Zepbound, are expected to be among the top 10 best-selling drugs in 2026. The success of semaglutide and tirzepatide has fueled the development of over 100 anti-obesity drug candidates, with an anticipated market value exceeding $100 billion by 2030.
Some patients and clinicians are turning to microdosing GLP-1 weight loss drugs for weight maintenance, lower costs, and reduced side effects. Medicare Part D spending on 10 diabetes medications increased to nearly $36 billion in 2023, representing a 364% rise over 2019, according to an Office of Inspector General report. The drugs include Mounjaro, Ozempic, and Trulicity. Spending on Ozempic alone rose 1,567% in 2023 to reach $9.2 billion. There are currently about 7,500 pharmacies engaging in 503A compounding and 88 503B outsourcing facilities.
Here are a few more recent, noteworthy developments concerning GLP-1 drugs:
The U.S. Food and Drug Administration (FDA) removed semaglutide (Ozempic, Wegovy) from the 506E shortage list in February 2025, confirming supply now meets demand. A grace period allows continued compounding — 60 days for 503A pharmacies (until April 22) and 90 days for 503B facilities (until May 22). Novo Nordisk has ramped up production and is shipping all doses.
A Texas judge upheld the FDA's ban on compounding Eli Lilly's Zepbound, requiring smaller pharmacies to halt immediately and larger ones by March 19. Meanwhile, 38 states urged the FDA to crack down on illegal online sales of GLP-1 drug ingredients. Eli Lilly and Novo Nordisk are also pushing to block compounded tirzepatide after the FDA ended its shortage status.
Roche struck a $5.3 billion deal with Zealand Pharma to co-develop petrelintide, testing it alone and with Roche's CT-388. Other emerging drugs include bimagrumab (to prevent muscle loss) and retatrutide (targeting multiple hormone receptors for weight loss).
Financial Impact of GLP-1
The demand for GLP-1 medications has driven substantial revenue growth for pharmacies, med spas, telehealth companies, and online suppliers. However, uncertainty surrounding compounding regulations and insurance coverage has made it difficult to predict GLP-1's long-term profitability. Many buyers are hesitant to factor GLP-1 revenue into pharmacy valuations, with some excluding it entirely and others limiting acquisitions to businesses where GLP-1 accounts for no more than 20% of revenue.
Despite this uncertainty, one thing is clear: GLP-1 drugs are here to stay. Their applications are rapidly expanding beyond weight loss and diabetes management to conditions such as kidney disease, cardiovascular health, sleep apnea, depression, alcoholism, and liver disease. This broader therapeutic scope, coupled with ongoing research and development, reinforces the staying power of GLP-1 treatments.
Valuing GLP-1 Revenue: Lessons From COVID-19 Services
Pharmacy valuations must now adapt to include the impact of GLP-1, much like they did for COVID-19 services. The pandemic created an initial boom in testing, vaccinations, and treatments, driving up revenues and pharmacy valuations. However, as the crisis evolved, so did the demand for these services. While COVID-19 testing and vaccine distribution initially soared, long-term demand has settled into a sustainable, albeit lower, level.
A similar trajectory is likely for GLP-1. While the initial surge in demand and supply shortages created a temporary revenue windfall, long-term integration into mainstream healthcare will stabilize the market. Insurance coverage may expand, new competitors will emerge, and manufacturing capabilities will improve. Pharmacies that relied heavily on COVID-19 testing had to adjust as demand declined, and businesses heavily invested in GLP-1 must prepare for similar shifts.
Structuring Deals With GLP-1 in Mind
Given the uncertainty surrounding the GLP-1 regulatory landscape and payor coverage, structuring earnouts remains the most prudent approach when valuing pharmacies with significant GLP-1 revenue. Earnouts allow buyers to hedge risk while ensuring sellers receive fair compensation if GLP-1 revenue remains strong. This approach mirrors how pharmacy valuations adjusted to post-pandemic realities — recognizing initial spikes while planning for long-term sustainability.
Ultimately, pharmacies that integrate GLP-1 revenue strategically — rather than relying on it as a short-term cash driver — will be best positioned for long-term value. As the GLP-1 market continues to evolve, valuations will need to reflect not just current revenue but also the durability and adaptability of these offerings within the broader healthcare landscape.
Pharmacy owners seeking to understand their market position, including the likely impact of GLP-1, and maximize their company's value should connect with VERTESS. Our experienced healthcare M&A advisors will provide in-depth market insights and strategic guidance that can help you evaluate your options, strengthen your business for future growth and increased valuation, and navigate the complexities of a potential sale. Whether you're planning for an exit now or in the future, VERTESS offers the expertise and support needed to position your pharmacy for long-term success and a successful transaction.
Alan J. 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.
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As a cybersecurity law attorney with experience handling data breach investigations, and the related ramifications and privacy compliance dimensions, I was pleased when Vertess approached me about publishing a blog article concerning cyber due diligence (Cyber DD). Engaging in due diligence of risk as part of mergers and acquisition (M&A) is a standard practice. So, sharing knowledge around Cyber DD was a sensible suggestion and I readily agreed.
In addition to breach coaching, my experience includes partnering with technology to create legal-tech solutions that help protect assets and businesses. For example, OnCall Recon is a law-led solution that uses patented netflow technology in a two-week audit to verify the effectiveness of security controls. My discussion of OnCall Recon for a Cyber DD use case was the other prompt for this article. The growing risks of cyberattack affect all sectors, so it is timely to inform the M&A community about the expanding risks.
A preliminary observation is whether representations and warranties (Reps & Warranties) is a satisfactory way of avoiding the additional expense of commissioning a Cyber DD service. The risk of a Reps & Warranties approach is whether the parties have a basis for making an appropriate representation about security or assigning responsibility for the risk of a data breach. Threat actors are skilled in establishing a persistent presence, which entails circumventing detection. Moreover, in the cat and mouse game of cybersecurity, the defenders are always playing catch-up with the latest attack technique. Cybercrime will be a $10 trillion black market industry in 2025. The attacks will keep coming.
Yet, in the cybersecurity market, it has usually been compliance mandates rather than cyber risk that has triggered spending increases to improve cyber hygiene. A pending compliance requirement may impact the M&A market – the Cybersecurity Incident Reporting for Critical Infrastructure Act (CIRCIA). In October 2025, a Notice of Proposed Rulemaking will go into effect, having broad implications for cyberattack reporting.
CIRCIA will require reporting to the DHS Cybersecurity and Infrastructure Security Agency (CISA) of any “substantial” cyber incident or ransomware payment by a “covered entity”. The proposed rule has a multi-part definition of a substantial incident, including:
Unauthorized access to a covered entity’s business system:
Caused by automated download of a tampered software update; or
Using compromised credentials from a managed service provider.
Intentional exfiltration of sensitive data in an unauthorized manner for an unauthorized purpose.
Notably, these criteria would trigger CISA reporting for attacks that would not meet the data breach standard under state law. These expansive triggering criteria suggest that third-party or supply chain attacks that compromise an M&A party’s network would trigger reporting to CISA. However, a further step in the analysis is whether the attacked party is a “covered entity”. Except for small businesses, the criteria would also implicate a broad swath of companies in mandatory incident reporting. If the attacked company meets the broad sector definitions of DHS, such as operating its business in the financial services, health care, or information technology sector, it would likely be a covered entity.
An additional wrinkle about CIRCIA’s application to M&A activities is the practice and utilization of a Data Room. The owner or custodian of the Data Room could have a duty to report to CISA if a substantial incident affected it (e.g., a supply chain attack, as noted above), especially because of all the sensitive information contained in a Data Room. Moreover, considering how threat actors seek to migrate and move laterally, the Data Room could be attacked by an upload of data from an M&A party or any of its advisors or partners. Hence, transaction brokers, financial service providers, M&A parties, Data Room Custodians, and any party associated with the M&A activity could suffer a substantial incident giving rise to CISA reporting.
CIRCIA’s final rule may change before it is promulgated in October of 2025. However, the underlying federal law was enacted in 2022 and supports Congress’ intent to improve cybersecurity for critical infrastructure. What is considered critical infrastructure is extremely broad; and therefore, CIRCIA will create an incentive for many companies to improve cybersecurity so that the risk of reporting to CISA is minimized.
For the M&A market, the same incentive applies. Hence, both Data Room cybersecurity and Cyber DD to increase assurance of a clean asset will likely receive higher priority in M&A activities in 2025.
Doug DePeppe
Doug DePeppe is a Special Counsel in the Firm’s Denver office with a national practice in data rights, data protection, sports data and licensing, and cybersecurity law. He is a member of the Firm’s Privacy & Data Security, Sports Industry, and Artificial Intelligence Practice Groups.
A retired Army Judge Advocate and national security attorney, Mr. DePeppe’s military cyberlaw career began with his Army-funded Master of Laws (LLM) degree from The George Washington University Law School with a cyberlaw focus, followed by his leading the Army JAG Corps’ development of a cybersecurity law practice. He next helped develop cybersecurity law capabilities in the cybersecurity divisions at Homeland Security, including serving as the legal advisor to US-CERT.
In his cybersecurity law practice, Mr. DePeppe assists clients in data breach investigations, orchestrating the incident response and crisis management as a Breach Coach. Mr. DePeppe has assisted clients with cyberattack response services for twenty years. He is well known and respected in the field, has presented at major conferences on nearly every continent across the globe, and has published in Forbes, trade journals, and other online magazines.
Mr. DePeppe also assists clients with data privacy prevention and compliance. Leveraging his interdisciplinary knowledge and cybersecurity resource network, he helps clients with risk assessments, leadership and boardroom training and mentoring, third-party contract and supply-chain risk review, cyber due diligence for mergers and acquisitions, and other cyber risk advisory and services.
With his background in data rights, Mr. DePeppe also advises clients concerning name-image-likeness (NIL) protection and licensing. Universities, collectives, athletes, sports entities and associations, and sports agents have growing needs to protect NIL monetization efforts from infringing misappropriations.
While a Judge Advocate, Mr. DePeppe was a trial attorney in courts-martial for five years and became a certified capital case defense counsel. This criminal law experience aids his client advice concerning cybercrime. Additionally, Mr. DePeppe has used his litigation experience in the representation of sport sector mediations and arbitrations. In particular, he has successfully represented several soccer clubs and athletes in administrative disputes arising from the Ted Stephens Amateur Sports Act and SafeSport.
The M+A market continued to struggle to rebound this year after a slow 2023, undoubtedly due in part to continuing high interest rates and the pending election. Straightforward deals that, in another year, would have successfully closed did not, while more complex deals were met with various roadblocks. However, with interest rates slowly coming down and the election results in, all signs are pointing to a rosier outlook in 2025 for M+A activity. VERTESS is excited to share its annual year-end review and future outlook for each healthcare vertical in which we operate. We are encouraged going into the new year and are looking forward to what 2025 has to offer!
If you'd like to discuss your healthcare market in greater detail with any of our Managing Directors, we have provided contact information for each of them at the conclusion of their comments.
Bradley Smith, Managing Director/Partner
Durable Medical Equipment / Home Health / Medical Device Manufacturing
Durable Medical Equipment (DME)
Valuations in DME this past year have unfortunately continued their downward trend since the highs of 2021 and 2022, albeit at a much slower pace. As a result, there have been fewer transactions than in a normal year. There have been a few exceptions to this, namely very niche and large providers bucking this trend i.e. Nationwide and Rotech. On the positive side, private equity as a whole has shown renewed interest in the DME market with favorable modeling on the industry at large. In 2025 I look to see more PE and PE-backed players to increase acquisition efforts and see a modest increase in valuations as well as the number of transactions. In fact, we were already starting to see this uptick in Q4.
Medical Device
Valuations in the broader Med Device market have remained stable despite a slowing in transaction activity in 2024. Largely, the transactions completed this past year have been strategic, with a continued decrease in private equity platforms. I am looking for this trend to change based on the favorable broader market conditions of lower interest rates and a surplus of dry powder. This will lead to increased competition for assets and a modest increase in valuations.
In 2024, M+A activity in the SUD and mental health sectors grew by 6%, with 80% of deals focused on follow-on acquisitions. This highlights buyers’ preference for scaling existing platforms and lowering their average entry multiples, signaling a cautious yet optimistic market.
In 2025, this trend is expected to continue, bolstered by stabilized interest rates and operational costs. Capital will increasingly target providers offering a continuum of care, aligning with the industry's shift toward value-based models that prioritize breaking down silos and creating seamless, single-point entry systems. New platform acquisitions are likely to drive further follow-on deals, providing early-stage platforms with favorable opportunities for sellers. Providers demonstrating integrated care models, operational efficiency, strong outcomes, and robust telehealth offerings will remain highly attractive, positioning them to secure premium valuations in an active, competitive market.
The pharmacy industry faced a multitude of challenges in 2024. New drug approvals, innovative formulations, and revised pricing regulations reshaped the landscape. Drug affordability took center stage, with initiatives like affordable insulin and biosimilars gaining prominence. Pharmacy Benefit Managers (PBMs) faced increased scrutiny from employers and consumers demanding transparency in their practices. PBM actions inadvertently drove patients away from independent pharmacies.
The retail pharmacy sector experienced significant disruption due to years of mergers and acquisitions, rapid expansion, and the entry of major players like Amazon and GoodRx. The 340B Drug Pricing Program underwent dramatic changes, particularly impacting hospital-based pharmacies. In the specialty pharmacy realm, a shift from brand-name drugs to biosimilars and increased scrutiny of rebate programs aimed to reduce costs. Additionally, hospital-owned specialty pharmacies emerged as a growing trend. Workforce shortages further compounded the industry's challenges, affecting staffing levels and operational efficiency. The cyberattack on Change Healthcare had a significant impact, exacerbating industry-wide issues. Declining customer satisfaction, rising costs, and increased PBM scrutiny added to the complexities. As the industry continues to evolve, digital technologies play a crucial role in consumer interactions with PBMs and pharmacists. In 2025, M+A activity is expected to remain high, especially in the compounding, specialty, home infusion, and nuclear pharmacy sectors. The retail pharmacy sector is likely to face continued challenges in the coming year.
Intellectual/Developmental Disability / Traumatic Brain Injuries / Behavioral Health
Throughout 2024 we continued to see good deal flow and strong valuations in small and mid-sized behavioral health deals. Business owners who chose to sell in 2024 are very pleased with their results and the processes we ran. Our expectations are that the business environment in 2025 will likely continue to remain strong as this space is far more stable and predictable than other lines of business.
The medtech and healthcare IT sectors have seen significant momentum in M+A activity and private equity interest, particularly as innovation continues to reshape the landscape. Medtech has focused on scaling promising technologies, such as surgical robotics and brain-computer interfaces, which are drawing substantial funding and strategic interest. Healthcare IT, on the other hand, remains a resilient and attractive area for PE sponsors, driven by consolidation and demand for solutions like chronic disease management, digital therapeutics, and real-time analytics platforms. Investors are capitalizing on these opportunities, reflecting a strong appetite for scalable, high-growth assets in these markets for 2025.
Private equity activity in healthcare services has been marked by a cautious yet optimistic approach over the past year. Deal flow slowed slightly in 2024, as buyers and sellers navigated market timing challenges and economic uncertainties. However, interest remains high in sectors like infusion services, medspa, and outpatient mental health, although the scarcity of platform-scale assets poses challenges. Specialty physician groups have become a contrarian play amid PPM dislocation, though strategic exits are beginning to thaw the market. Infusion services have stood out as a top-performing category, and with increasing optimism, 2025 is expected to bring a modest recovery in deal activity across healthcare services, underpinned by strategic acquisitions and the gradual stabilization of macroeconomic factors.
As we approach the end of 2024, we’ve observed a slowdown in closed transactions within the healthcare M+A landscape compared to the previous year. This deceleration can be attributed to cautious market conditions and regulatory complexities. However, the outlook for 2025 remains positive, with expectations for a resurgence in deal activity. Companies are increasingly recognizing the importance of strategic acquisitions to enhance service offerings and improve operational efficiencies. With a renewed focus on partnerships that leverage data analytics and innovative technologies, we anticipate a wave of transactions aimed at navigating the evolving healthcare landscape. Investors are poised to capitalize on these opportunities, and as market conditions stabilize, we expect to see more deals successfully closing in the coming year.
Durable Medical Equipment / Home Medical Equipment
Overall, 2024 saw a slowdown in deals for DME; specifically in the areas of Medical Supply and CRT. While the category did slow, some therapies and product-specific areas did experience normal to increased interest and valuations. Clinical therapies such as Wound Care, Urology, and Diabetes CGM saw strong interest and acquisitiveness from both large strategic buyers and financial buyers. Overall however, these categories have seen tremendous consolidation during the past decade, so much of the slowdown comes from low inventory of companies as well as larger buyers settling on the many transactions completed during record times of 2021 and 2022. Other therapies such as Incontinence, Enteral, and Ostomy did not attract the level of interest as in years past. Much of the interest, however, was very targeted toward specific geographies, payers, and companies with value-based programs that brought higher margins to these commodity-type “lower margin” therapies. Similarly in CRT, consolidation over the past decade has hit this category hard and interest from the larger strategics seems to have slowed down.
With the Centers for Medicare & Medicaid Services and private payors increasingly focused on reducing healthcare costs and improving patient outcomes, home health agencies are stepping up to play a bigger role in the overall care landscape. We saw the nationwide rollout of home health value-based purchasing gain further traction in 2024 and build momentum heading into 2025. This model rewards participating home health agencies for delivering high-quality care and enhancing patient outcomes.
Many agencies are maximizing these reimbursement opportunities by leveraging new tools for measuring and improving outcomes. Thanks to advancements in data analytics and digital platforms, home health providers can more easily track patient progress and report essential metrics. These insights allow them to refine their care strategies, increasing their chances of higher reimbursements. As home health agencies become even more integral to value-based care, buyers are eager to get involved early and capitalize on the sector's growth.
Smaller agencies or those with fewer resources have faced challenges with the financial and operational investments required to meet new value-based reporting standards. This is creating an opening for investors and an opportunity for home health agencies. Agencies open to a financial or strategic partnership can gain access to the capital they need to make these investments and remain competitive.
Ambulatory Surgery Centers / Hospitals / Physician Practices
2024 served as a litmus test for healthcare companies as we move to a post-COVID-19 norm. As a result, 2024 defaulted to safe acquisitions to mitigate risk for buyers. This was primarily observed in companies that were affected both positively and negatively by the epidemic. Among these companies, Urgent Care, laboratory companies, revenue cycle management (RCM), and Ambulatory Surgery Centers were most affected. The good news for 2025 is we can now see acquisitions trending through platform consolidation and buyers entering the market more confident and willing to take more risk. The indicator for this change is a heavy interest in strategic buyers looking to add to existing platforms and enhance their portfolio with add-ons, whereas these actions were stagnant in 2024. There is increased interest in RCM companies and Urgent Care centers that were considered a higher risk during COVID due to the risk of future non-reoccurring revenue. Ambulatory Surgery Center management companies are looking to grow exponentially in 2025. This heightened interest can be validated by the increase in their 2024 acquisition budgets. The new target audience for these specific companies will be private equity groups who are still cautious about the risk and acquiring funding while staying competitive with bids. It will be the job of intermediary M+A companies to provide a narrative for sellside opportunities by utilizing 2024 data to justify a meaningful multiple for their client and minimize risk in a now more stable market.
Market valuations for healthcare companies/practices sold in 2024 included many above-average offering prices. We received more outlier offers in 2024 than we’ve seen since pre-COVID. That’s the good news. The not-so-good news was that M+A transactions in 2024 took much longer than usual to complete. This may be the result of a continued flight to quality that we’ve experienced since post-COVID. The good news is that most healthcare companies have long since gotten past the ill effects of COVID-19 in their financial performance.
We expect 2025 to be much more robust than 2024 regarding M+A transactions. We sense a greater level of optimism among market participants. The tailwinds impacting M+A in 2025 are based on improving companies’ financial performance, lower interest rates, aging baby boomers/business owners seeking to retire, increased liquidity of investors/buyers, and lower inflation. We further expect a higher-than-normal amount of outlier offers for healthcare companies in 2025.
A few months ago, I joined VERTESS as a managing director. I became a member of this great team because I want to help healthcare business owners successfully sell their companies. I also want to ensure our clients do not experience what I did when I sold my business.
The Background
I graduated undergrad with a degree in economics with a premedical emphasis. My expertise was in the analysis of financial statements, largely of publicly traded companies. I worked for the S&P 500 for a little while but found myself lacking passion and was eager to find a career that would give me a more purpose-driven life. I decided to get into senior home health care. I held positions at a few impressive home care agencies and then decided in 2002 to start my own agency in Colorado. I believed I could provide senior home health care services to seniors in the state better than anybody else.
The belief in myself paid off. By 2008, through organic growth and small add-on acquisitions, my agency was generating about $8 million in revenues. We had three branch locations and operated from northern to southern Colorado. We were a top-tier agency providing the full continuum of senior home health care, which was highly attractive to buyers at the time.
While I wasn't interested in selling my agency, my hand was essentially forced due to a divorce. A buyer reached out and expressed significant interest in my agency. Representatives of the buyer, including its owner, flew to Colorado for a meeting at a restaurant airport. The buyer was prepared to generously reward me for the tremendous amount of work I had put into my company and the success we had achieved.
It seemed like we were heading to an outcome that would see me making the best of a situation I didn't want to be in. I handled all the negotiations with the buyer. While I had some previous experience with mergers and acquisitions (M&A), I was by no means an expert. This wasn't a concern at the time as I thought that the buyer had my best interests at heart, and everything with the acquisition of my agency would be done on the up and up. What can I say? I'm an eternal optimist.
Ignorance Is Not Bliss
My naivety came back to bite me. The buyer's attorney eventually took the lead in the negotiation process, and he was supported by an external accountant. Unfortunately, I didn't recognize that what had been a "human transaction" involving a buyer that seemed to prioritize my wellbeing became a deal all — and only — about numbers.
And the numbers weren't going to end up pretty for me. I received a good offer on paper, which combined what seemed like fair figures for cash, an earnout, and stock. I was working with a broker who was referred to me, but I didn't know this broker had represented the buyer. Same with the attorney who was recommended to me. These were clear conflicts of interest, but I did not discover them until after the transaction.
Right before we closed, the buyer said we should make a 338(h)(10) election, which I later found out can greatly harm a seller's finances due to tax implications. The buyer also included some carefully worded language in the contract with stock implications, which I missed, and my broker and attorney failed to discuss with me. The buyer's representatives said all the right things to keep me moving forward toward the sale. They said they wanted me to remain on for a year to help with the transition and would make up for any shortfalls through my salary.
In the end, my rose-colored glasses betrayed me. My stock ended being worthless, and I never received an earnout. Following the transition year, I walked away from my company with nothing except my initial cash.
That was devastating. I put my blood, sweat, and tears into that organization. I gave up time I could have spent with my family growing the organization — in part because I wanted to help more people through our services, but also because I believed the work would pay off financially and enable me to better support my family. While I was able to achieve the former, positively impacting many people's lives, I felt robbed of the latter.
The Lesson Learned
Where did I go wrong with selling my company? I don't want to put too much of the blame on my optimism and the belief that people are generally good. My work in the senior home health care space has shown me this is largely true. But the reality is that when it comes time to sell your company, you cannot afford assumptions. Buyers are looking for good deals, and some will try to take advantage of inexperienced sellers.
I recognize that where I went wrong was that I lacked good representation in the transaction. Engaging with the right M&A advisor, knowledgeable in home health, free of conflicts of interest, and whose responsibility was to have my and my company's best interests at heart, was the key to my receiving fair value for my company. During my sale, I did not have this kind of representation, and I paid the price.
This brings me back to my joining VERTESS. I'm in the last leg of my legacy. I have three grown children and one smaller child. I decided I wanted to finish my career doing purpose-driven work. Despite my success owning and operating home health companies, I was no longer finding joy from C-level operations.
I met with VERTESS' leadership and instantly knew that this was the right firm and right work for me. I had my doubts about a career in M&A because I had largely soured on these professionals due to my transaction experience, but the VERTESS team shows that not every M&A firm is only interested in getting deals to the finish line and earning commissions. The team is largely comprised of past owners and operators of healthcare business. We understand what it takes to grow a business, including making huge sacrifices, and what's required to get to a place where buyers are willing to pay a generous and fair amount for a company. We know the importance of finding the right buyer — one capable of making a good financial offer and who will help the business they are acquiring continue to grow and thrive.
We also understand that when it comes to transactions, the devil is in the details. A little mistake or oversight can jeopardize a deal or lead to an unfair outcome for a seller. We support one another at VERTESS and collaborate closely with the other members of a transaction team, like an attorney and accountant, to ensure no important detail is missed.
Most importantly, we are motivated to help our clients succeed. Our team has been in their shoes, which is why we follow our form of the golden rule: We do unto our sellers as we would want someone to do unto us. As you might imagine, this is very personal for me given what I experienced — and what I hope no one else experiences.
My story shows that choosing the right representation may be the most important step you take to prepare for selling your company. When that time comes, I hope you will reach out to VERTESS. We'd love to learn about you and your company's story and help provide the happy ending for your business that you deserve.
Christine Bartel, MBA/MHA, CSA
Before joining VERTESS, I served as a senior healthcare executive for 26 years. My expertise includes CEO and COO functions, which produce dramatic improvements in financial performance through acquisitions, joint ventures and, service line development. I am experienced in the full continuum of care, with a deep understanding of how new federal and state policies impact the bottom line. After working as a statistician at Standard & Poor’s Compustat and a financial analyst at Dun & Bradstreet Corp., I began a career in health care and, in 2002, started a home care services company in Colorado. Serving as the CEO, I supervised a staff of approximately 350 caregivers, established two branch locations in Colorado Springs and Fort Collins, and ultimately sold the company to a private equity firm in 2008. Since then, I launched an independent consulting practice that acquires underperforming health care entities, delivers strategic guidance and an array of management services to diverse healthcare organizations, facilitates with interim/long-term senior leadership operational turnarounds, joint ventures, facility expansion, service line development, and mergers and acquisitions. I also coach health system executives, physician groups, assisted living facilities, skilled nursing facilities, insurance companies, and post-acute organizations.
I earned my Bachelor’s Degree in Economics from the University of Colorado Boulder and an MBA from George Washington University. In 2012, I received my Certification as a Senior Advisor (CSA). Lifetime achievements include raising four beautiful children, hosting “Aging Independently with Christine Bartel” on CBS Noon News, and authoring “Redemption, The Christine Bartel Story.” I received 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.
We can help you with more information on this and related topics. Contact us today!
FORT WORTH, Texas, Nov. 15, 2024 /PRNewswire/ -- VERTESS (https://vertess.com), a leading healthcare mergers and acquisitions (M&A) advisory firm, is pleased to announce that Momentum (https://momentumme.com/), a Maine behavioral health provider that offers shared living and other services to people with intellectual and developmental disabilities, has joined the Mosaic (http://www.mosaicinfo.org) family. Momentum is now part of Living Innovations (http://livinginnovations.com), a service of Mosaic. Together they have increased their reach to people with diverse needs in Maine, New Hampshire, Rhode Island, and Connecticut. The transaction was facilitated by the VERTESS team and Rachel Boynton.
Living Innovations offers community-based services to 950 people, including more than 500 individuals who participate in shared living. They also provide vocational services to 204 people. Momentum serves approximately 270 people through its shared living and other community-based programs. Living Innovations State Operations Director, Andy Taranko, shares, "Momentum is a trusted organization that has innovative programs like Nature Trek and a strong reputation for quality. It is a natural fit for the high-quality services Living Innovations provides across Maine." These two organizations will serve about 1,500 individuals through shared living, community support, and employment services.
Dennis Strout, founder and Executive Director of Momentum, noted that his decision to become part of Living Innovations was greatly influenced by his desire to ensure the services provided continued long into the future. He shares, "The Momentum workforce has helped people achieve incredible things, and Living Innovations brings new levels of support and resources, a welcome addition to provide long-term stability for the services."
"I enjoyed working with the professional teams at Momentum and Mosaic in support of their goals," stated David Coit, VERTESS Director of Finance and Valuation. "Having worked with Living Innovations previously in their acquisition by Mosaic, I am excited to hear of future successes for the group."
Volume 11, Issue 21, November 5, 2024
By: Jack Turgeon, MBA
In recent years, we have seen healthcare information technology (IT) companies emerge as a leading investment focus for private equity. Healthcare IT has showcased resilience and steady growth even as other healthcare sectors, like healthcare services, faced evolving regulatory challenges. While Healthcare IT faces its own set of regulatory hurdles — especially around data security, interoperability, and compliance — these differ from the direct care and reimbursement complexities that healthcare services providers confront.
As owners of healthcare IT companies consider their strategic plans for 2025, I believe they have a unique opportunity to consider lucrative exit strategies and other mergers and acquisitions (M&A) opportunities, driven by strong and rising interest from investors who recognize the substantial value of digital transformation in healthcare.
Why Buyers Are Targeting Healthcare IT Businesses
The interest in healthcare IT companies from private equity firms and others stems from the long-term customer relationships and "stickiness" of software platforms, especially in mission-critical areas like revenue cycle management (RCM), quality of care, and provider productivity applications. The ongoing digital transformation in healthcare, coupled with a rising demand for analytics and interoperability, positions healthcare IT companies as high-value targets with scalable revenue potential.
Historically, the lower-middle market in healthcare IT was less attractive to private equity due to the dominance of venture capital investors and a focus on growth at all costs over profitability. However, as fundraising becomes more challenging, companies are shifting to scale with profitability in mind, aiming for cash-flow-positive models. We have seen this shift spur a rise in venture-backed, lower-middle-market software transactions, creating new M&A opportunities for companies that previously had limited exit and partnership options.
Attractive sectors in healthcare IT include RCM, predictive analytics, value-based care, and niche-focused healthcare solutions. RCM platforms are among the most sought-after targets, with significant deal flow driven by the outsourcing of complex billing and coding tasks. Despite some consolidation in recent years, this market remains highly fragmented, offering further consolidation opportunities for private equity, while the long-term relationships these platforms foster enhance scalability and investment appeal.
With the rise of value-based care, platforms centered on financial efficiency, data-driven decision-making, and outcome improvement — such as clinical analytics, care coordination, remote patient monitoring (RPM), and point-of-care decision support tools — are experiencing elevated activity. Tools leveraging artificial intelligence (AI), machine learning, and real-time data integration are particularly scalable across various healthcare settings, making them especially attractive to investors.
Software products focused on specific niches within healthcare are also drawing premium valuations due to their high demand. With barriers to entry and limited competition, these specialized products often establish moats through customer retention and long-term contracts, making them ideal tuck-in acquisitions for larger platforms. Examples include ambulatory electronic health record (EHR) and practice management solutions tailored to specialties like dermatology and ophthalmology, which offer highly specific workflows and patient engagement tools that drive operational efficiency and improved outcomes. Products focused on chronic disease management, such as hypertension- and diabetes-focused RPM, also align well with value-based care models.
Why This Matters for Healthcare IT Business Owners
Private equity interest in healthcare IT companies is driving higher valuations, especially in the sectors outlined above, enabling many owners to achieve attractive multiples when they bring their company to market. Selling to investors that understand the strategic value of specialized software allows for smoother integration into larger platforms, enhancing scalability and impact. Owners can also benefit from flexible exit options, including minority buyouts, majority recapitalizations, earnouts, equity rollovers, and ongoing roles within the acquiring platform, offering various paths to a successful transition.
For Healthcare IT business owners considering a future sale, taking steps now to strengthen and streamline operations can lead to a more attractive valuation and smoother transaction process. Start by ensuring that financial records and key performance indicators (KPIs) are transparent, accurate, and readily accessible. Clear visibility into revenue streams, customer retention rates, and cost structures is essential for attracting potential buyers.
Additionally, focus on reinforcing your platform's scalability and interoperability to align with industry demands for flexible, integrative solutions — features highly valued by private equity and strategic investors. It's also wise to address regulatory compliance proactively, particularly around data security and interoperability standards, as these are increasingly scrutinized in due diligence.
Finally, consider solidifying long-term contracts and deepening relationships with clients. Long-term customer retention enhances the perceived stability and profitability of the business. By preparing these elements now, you'll be well-positioned to capitalize on the favorable market trends when the right opportunity arises.
Maximizing Value in Healthcare IT M&A: Why Founders and CEOs Should Trust VERTESS
At VERTESS, we bring unparalleled expertise and a deep understanding of the healthcare IT sector to every M&A engagement, helping clients achieve the highest possible valuation and a smooth, successful exit. Selling a business is more than just a transaction — it's the culmination of years of hard work and growth. We recognize these efforts and take a personalized approach to transaction engagements, working closely with each client to understand their goals and develop a strategy that highlights the unique value of their company. Our process begins by identifying the ideal target buyer groups, whether they are private equity firms, strategic acquirers, or other specialized investors. With our extensive network, we connect owners with buyers who appreciate the strategic value of their business and are invested in maximizing its future growth potential.
We also excel in crafting a compelling narrative that showcases each company's strengths. By collaborating with clients to emphasize scalability, revenue potential, and competitive advantages, we ensure their business stands out in a crowded market and attracts top-tier buyers. From structuring the deal to navigating due diligence and handling negotiations, VERTESS provides comprehensive support at every step, anticipating and addressing potential challenges to keep the process on track. Our expertise ensures that every detail is managed with precision and care, giving clients the confidence that they're positioned for success.
With private equity attention intensifying and valuations on the rise, now is an ideal time for healthcare IT business owners to consider their exit options. Partnering with seasoned advisors like VERTESS can simplify the M&A process and unlock the full potential of an exit. This will help ensure owners are well-positioned to capitalize on today's healthcare IT market opportunities while preserving the legacy of their healthcare IT businesses.
Jack Turgeon, MBA
As a Director at VERTESS, I bring extensive experience in sales, consulting, and project management from early-stage startups. With an MBA from Babson College, I have a strong foundation in business strategy, operations, and financial analysis. My personal connection to behavioral healthcare through a family member motivates me to help business owners get the best deal possible while ensuring high-quality care for their clients. Throughout the M&A process, I provide comprehensive support at every step. I have a proven track record in negotiations and client management after working with companies in various industries. I’m excited to join VERTESS and make a meaningful impact on the lives of the owners I work with.
We can help you with more information on this and related topics. Contact us today!
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!
There's the expression, "You never get a second chance to make a first impression." For many healthcare business owners thinking about selling their company, the first impression they may personally make on prospective buyers will come from a confidential information memorandum (CIM). If that CIM doesn't represent the business in a professional, positive, and transparent manner, the owner may not get a chance to receive a fair offer.
What exactly is a CIM? It's the confidential document used to market a healthcare business to potential buyers. It may go by other names, including a pitch deck, investor deck, the "book," or confidential information presentation (CIP). The marketing document is typically called a CIM when used in the sale of a mature healthcare businesses and a pitch deck for healthcare startups.
While the name is interchangeable, the content is not. A CIM is the initial source of data and information a buyer uses to evaluate the candidacy of an investment target relative to its investment thesis. Broadly speaking, the CIM explains what the business does and the type of transaction the owners are seeking.
Most business owners do not create a CIM until they are prepared to actively market their business for a sale. However, if an unsolicited buyer takes interest in your company, immediate signals are sent if you do not have a CIM, let alone one that's current: You're unprepared for a sale, and the buyer is in a good position to negotiate a value deal. At least those are the signals potential buyers receive, regardless of whether they're true. Simply responding to interested buyers with an annually updated CIM signals a posture toward prospective buyers that you are not interested in a low-ball offer.
On the other hand, if you intend to execute a coordinated, professional healthcare M&A process to sell your business, a CIM is required. You will be marketing your business to dozens — if not hundreds — of potential buyers, many of whom analyze numerous potential acquisitions each week. Without the data about your healthcare business consolidated in a professional manner, buyers are much less likely to invest the time into understanding your company's raw information. Note: Marketing your healthcare company is essential to finding the right buyer and securing a fair price for your business, which I previously discussed in this column.
Moreover, organizing and presenting the data allows you to structure the narrative in ways that emphasize your company's strengths while providing explanation on any potential weaknesses. You can tell your story to potential buyers in ways that benefit you as opposed to allowing a buyer to "discover" the hair — the operational, legal, financial, or other aspects of the business that have had errors, inefficiencies, or other liabilities — and speculating on any other skeletons that could be in your closet.
This column takes a closer look at the importance and development of a CIM is written for two audiences: 1) sellers who are hiring a professional healthcare M&A advisor, like VERTESS, to help them proceed with a sale and develop a supporting CIM or to double check that their current advisor included the relevant, key points in the CIM and 2) owners who endeavor to manage the sale of their business without a professional M&A advisor (not advisable) and therefore need tips and best practices to create an impactful CIM.
Confidential Information Memorandum Best Practices
Let's take a look at a few general CIM best practices before we discuss key components of a well-rounded CIM.
First, do not use a Word or similar document to create your CIM. Nobody wants to open up a CIM and be greeted by a wall of text — even a wall that has an occasional chart or image dropped in. Buyers review hundreds of CIMs, so the last thing you want to do is have a CIM that makes a negative first impression (remember what I said in the first paragraph). Make your CIM simple, nice to look at, and easy to review and digest. Include graphics, charts, and pictures, and present them in an attractive layout. This is best achieved using software like Microsoft PowerPoint.
Second, don't exaggerate or attempt to mislead a reader. An investor competent enough to buy your company is also competent enough to eventually learn the truth about your company. Be as honest as possible in the CIM. That's what buyers are expecting.
Third, and this goes back to the purpose of the CIM: Keep it concise. This means around 40 pages, although fewer is fine if that's what's required to effectively tell your story. If you feel compelled to create a CIM that's longer than 40 pages, you should feel that those "extra" pages are absolutely essential to better positioning your company in a competitive landscape.
After sending a CIM to potential buyers, you will find many will respond with additional questions deriving from their specific investment thesis. You can't try to get ahead of every question as questions change between differing theses. An industry specialist can help you create a CIM with specific data points that all investors in your vertical will want to understand. Investors will begin analyzing the data, using it in their own models; ask questions relating to their own thesis; and, if they feel like there could be an interesting opportunity, they will set up a "coffee meeting." This meeting gets final questions out of the way. When using a healthcare M&A advisor, the coffee meeting isn't something you should need to do as the seller.
From here, a potential buyer should have the preponderance of data needed to meet with you, the seller; identify chemistry and synergy; dig deeper into the data; visit your operations (if applicable); and eventually, if all goes well, submit a letter of intent (LOI).
What To Include in Your Healthcare Confidential Information Memorandum
Below we identify some of the core components of a good CIM. There may be reasons to exclude, modify, or expand on this list. Each business is different, and your M&A advisor should know what is most important to include in your CIM, assuming your advisor is a specialist in your healthcare industry.
Company overview
The first page of the CIM with meaningful content — usually the overview — gets a fair amount of attention and then most buyers will scroll to the financial section found later in the CIM. If buyers like both pages, they'll go back and read the rest of the document.
In your business overview, summarize the offering in a way any reader (potential buyer) can understand. Define your audience, which is often demographics of end users, the business types you sell to, and/or possibly a job function (i.e., your customers). Show how you solve a problem(s) and explain it in a way that's easy to follow.
The final element to include in your overview is your "secret sauce" — your unique approach to solving the problem with your target audience.
Some quick tips for writing the overview:
Avoid using adjectives like "first," "only," "huge," or "best," which are words that signal inexperience and possibly exaggeration.
Take time to properly define your target audience.
Eliminate buzzwords or jargon.
Keep it concise.
Include the ownership structure, reason(s) for the sale, and details on the desired deal structure, if known.
Company history
When you reflect on the history of your business, you'll probably think about the experience of opening the company, your first customer, the first time you hired and fired someone, your first insurance reimbursement check, a customer experience that went wrong, or a major accolade. Investors want to know about the background of your company, but they are really looking to understand your history through the lens of growth. Help buyers visualize the way your footprint expanded, customers grew, patients diversified, contracts were secured, and staff increased. Include the challenges and risk factors you faced along the way and how you overcame or navigated them.
Remember: A buyer is acquiring your business so they don't need to face all the challenges you encountered and overcame. If they wanted to face those challenges, they would start their own company. Let buyers know how much work it took to grow the company to its current state, even if those growth pains are in your distant memory.
After reading the history, potential buyers should come away with two sentiments: 1) I'm glad I don't have to go through all that effort, and 2) The skill, effort, and luck involved to advance the business to its current state are difficult to reproduce, so it's less risky to buy than build.
Team
Include an organization ("org") chart and explain why your team is qualified to execute your operations better than competitors. Work history, networks, and skills are key points to highlight, as is your history together as a team. This may include how you knew each other before working together.
Resume highlights or short bios are expected. Limit these to your leadership team. While the organization chart may show all the positions (ideally grouped by division or function), investors are most interested in and likely looking to acquire your management team. They want to know the management team that they're acquiring is worth their investment.
Healthcare market
In many healthcare verticals, the market is known or assumed, but potential buyers want to know how big the opportunity is associated with your company. Yes, they may plan to expand your business, but the core market is a starting point, and they want to know that you know it.
Beyond providing a market overview, also provide a clear picture of your audience. What is your market size? Who are they, and how many are in your market? How do you reach/communicate with your audience? What are your referral sources? What is your market position?
When putting together this market analysis, you may decide to share the "total addressable market" (TAM), which includes every potential member of your audience seeking services or products from your business, or you may decide to refine it to your "total serviceable market" (TSM), which are the customers you are able to reach.
Business model
How do you make money? Who pays you, how much, when, and from where? I've seen sellers drop the business model canvas into a pitch, but that may signal inexperience. You should be able to synthesize your business model into a succinct, visual, and possibly creative way where everyone can understand the model.
For example, with substance use disorder (SUD) providers, I model the American Society of Addiction Medicine (ASAM) continuum in a visual, then overlay the company's position in the continuum and add relevant data. See an example below. It's a simple visual to depict a client's business model, and even an investor not experienced in the space will understand exactly what the client does, how they're paid, how patients move around the continuum, and some outcome measurements.
Competition
Not all CIMs include information on competition, but I personally like to discuss it. In the SUD/mental health spaces, it's helpful to see the density of providers in a geography since that helps buyers understand in-network reimbursement rates better.
When providing a competitive analysis in the CIM, you do not need to know and/or identify every competitor, but you should have command over the competitors in proximity to your operations. Communicate how they're trying to address the problems you're working to solve and how your solution is similar or different — or whether any difference matters.
If you have a competitive advantage, share it. If your service is similar to your competitors, leave this section out. It may be unnecessary and spur questions you don't want to answer.
Business growth
Buyers deploy capital to generate a return on their investment. How might they generate a higher return on capital with your asset versus another? While you might not receive the "credit" in valuation for future revenues associated with growth (the buyer will need to do the work to achieve that growth, so they're not going to pay for it ahead of time and be accountable to execute it), you'll see increased interest from potential buyers if you can show demonstratable pathways to that growth.
Case studies that highlight a recent initiative and discuss how that initiative and its success can be reproduced is one effective way to demonstrate growth opportunities. In SUD, this may be a new level of care in an existing geography or starting an intensive outpatient program (IOP) to see if there's demand in a new geography before launching a residential treatment center (RTC). In mental health, a case study might speak to marketing to new populations, telehealth, psychedelics, or transcranial magnetic stimulation (TMS). Including data points that give a clear picture of the path toward growth can effectively demonstrate growth potential.
There are areas of low-hanging fruit for growth in most businesses. Even if they seem obvious, explain them. There are also growth initiatives you may have considered but chose not to pursue due to the effort, capital requirements, lack of manpower, lack of expertise, or simply because you were approaching a sale. Put numbers and timelines to these initiatives and offer the buyer a blueprint to a higher return on capital.
You're the expert. Help show it in the CIM. Buyers want to know what you might do to grow first before considering their own plans.
Financial overview
Historical and projected financials are key elements to a CIM. Explain volatility, and defend the proforma. Potential buyers will scrutinize any years where revenue and expense variance were substantial, so it helps to set the narrative for those likely questions in the CIM.
It's best that proformas provide a realistic outlook for the current scope and scale of the business if it is mature or a defensible and conservative outlook for growth initiatives for a newer business or startup. Sellers tend to have a bright outlook for future performance, but buyers know that storms can quickly appear in even the bluest of skies. In other words, your proforma should point "up and to the right" (it would be uncommon for an owner to believe plans will result in declining revenues) but avoid signaling inexperience by including assumptions that paint an unrealistic or overly optimistic growth trajectory.
Make sure the data you've peppered throughout your CIM clearly ties to and is reflected accurately in the proforma. We call this "tick and tie," where advisory teams put a "tick" mark next to every data point in a CIM and "tie" them out to all the other data to ensure everything checks out. If you don't tick and tie your CIM, there's a good chance a buyer will — and if they do, expect them to catch any errors, which will damage your credibility.
Metrics
Not all businesses operate off metrics, which is a travesty. If you have metrics, the key is to compare yours to industry norms. Common metrics in healthcare businesses include prior authorization versus claims collected, census, inventory turnover, and rounding, so you should be able to identify the benchmarks (a healthcare M&A advisor will help with this as well). If you have substantial variance from any benchmarks, you must address the reason(s) why. It's better to have an upfront explanation than to let buyers discover these variances and develop their own narrative for why your business is underperforming.
Creating An Optimal Healthcare Confidential Information Memorandum
Developing an informative and effective healthcare CIM takes time, expertise, comfort with software, and other skills. An experienced M&A advisor will have these skills or a team supporting them with such talents. An advisor will know how to present your company's most important data and what data to omit. An advisor will also know how to pepper the CIM with data points allowing buyside analysts to prepare their own models so they can analyze your business operating in their portfolio or model.
Completing a CIM is possible without an expert M&A advisor but doing so is not without risks. For most business owners, the work required to create a proper CIM is usually difficult to effectively execute while operating and leading the company and do so in a way that creates a limited auction for the company.
Since the CIM is essentially the first true experience, interaction, and impression a potential buyer will have with you and your company, it's likely in your best interests to hire a healthcare M&A advisor and task them with taking the lead on drafting the CIM. This will better help ensure the final document communicates what buyers want to see, positions your business correctly under current market conditions and buyer interests, and gives qualified buyers a starting point for the "coffee meetings."
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!
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