If you're thinking about selling your treatment organization in the next few years, you're not alone. Many owners of substance use disorder (SUD) and mental health businesses are evaluating their exit options as demand grows and consolidation continues. Everyone wants the highest multiple and enterprise value possible, but the reality is that most companies don't yet have all of the traits that command top-tier offers.
That's okay. The good news is twofold:
Buyers will still compete for your business, and expert behavioral health M&A advisory firms like VERTESS will know how to position it for maximum value.
With the right operational improvements, you can not only increase EBITDA but also make your company far more attractive in the eyes of sophisticated buyers.
This column highlights pragmatic, high-impact steps you can take now in preparation for a sale, with steps organized by area of focus. They are drawn from our experience advising hundreds of transactions, as well as the insights you can find in the VERTESS healthcare M&A e-book, Selling Your Baby.
Automations and Data Discipline
One of the starkest differences we see between average providers and market leaders is how they handle automation. Reducing manual clicks, duplicate entry, and siloed apps creates efficiencies, boosts staff satisfaction, and enables real-time analytics.
Why this matters to buyers: Streamlined systems reduce integration risk; make culture healthier, contributing to lower turnover; and provide reliable data for due diligence. Even smaller operators can start with cost-effective tools like Microsoft Power BI or Zapier before moving to a full enterprise resource planning (ERP) solution.
Smart Use of AI
Artificial intelligence (AI) is quickly becoming table stakes. Whether it's electronic medical record (EMR)-driven clinical note summarization, automated referral communications, or predictive analytics, AI creates leverage.
Why it matters to buyers: Companies with AI already embedded are seen as forward-thinking, scalable, and less dependent on expensive human workarounds.
Digital Presence That Lasts
If your intakes are heavily dependent on pay-per-click ads like those through Google, you're vulnerable. Domain authority, search engine optimization (SEO), and content strategy (e.g., newsletters, blog posts, video) will matter even more as AI-driven search becomes dominant.
Why it matters to buyers: Strong digital equity is seen as durable, signaling lower future marketing costs and higher resilience.
Referral Mix
Diversity matters. A balanced base of hospitals, justice referrals, private referents, alumni, and other providers makes your revenue story stronger.
Why it matters to buyers: A Medicaid/commercial payer mix paired with referrals that actually support that mix creates confidence. Gaps here can be framed for buyers as growth opportunities, but they must be explained.
Outcomes That Go Beyond Checkboxes
Measuring PHQ-9s is not enough. Demonstrating outcomes such as alumni engagement, law enforcement encounters post-discharge, or average length of stay (ALOS) improvements shows that your program delivers real value.
Why it matters to buyers: Positive outcomes are now an expectation. They reduce perceived risk and support premium valuations.
Continuum of Care
Standalone silos are increasingly less attractive. Even modest extensions like adding a partial hospitalization program (PHP) to an intensive outpatient program (IOP), integrating housing, or layering in an outpatient program with medication management and peer services will strengthen both patient experience and revenue durability.
Why it matters to buyers: Integrated continuums hold patients (clients) longer, drive outcomes, and align with payer demands.
The Bigger Picture
As Selling Your Baby points out, preparing to sell is not just about financials. It's about making your company beautiful in the eyes of buyers. That means clean records, transferable contracts, professional management, and systems that don't depend on you personally.
The truth is, no company checks every box perfectly. That's where VERTESS comes in. We understand how to highlight your SUD or mental health treatment organization's strengths, frame your story correctly for the market, and position the areas a buyer can improve as value-creation opportunities. That way, you achieve the best possible outcome, whether you plan to sell in six months or three years.
Ready to Start the Conversation?
Even if you're not planning to sell your SUD or mental health treatment organization tomorrow, the best time to prepare is now. Both small and more significant changes, like those highlighted earlier, can translate into a higher multiple later and a smoother transaction.
At VERTESS, we specialize in behavioral health transactions, supporting SUD and mental health treatment organization owners nationwide. We know what buyers want, we know how to present it, and we know how to protect your legacy while maximizing value.
Let's start the dialogue. A confidential call today could be the first step toward achieving the future you've envisioned for yourself and your organization.
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!
The behavioral health sector has experienced significant M&A activity in 2025, fueled by growing investor interest and heightened demand for services. Having worked with numerous behavioral health operators across various M&A transactions, I've seen firsthand how success in this space requires far more than standard due diligence. From complex reimbursement structures to specialized clinical considerations, the details can make or break both the deal itself and the long-term integration.
Whether you're considering an exit strategy or evaluating a new acquisition, preparing for due diligence can dramatically increase the odds of a smooth transaction. Many of the issues we'll cover can be addressed before a sale or purchase process begins, allowing sellers to position themselves more favorably and buyers to make informed, confident decisions. What follows is a deep dive into the most critical components of behavioral health due diligence, expanded to capture the full detail that this sector demands.
Financial Considerations
The financial review is often the first stop in due diligence, but in behavioral health, it carries more weight than just verifying profit margins. Revenue cycles, payor mix, and cash conversion timelines all reveal how well an organization can translate care into sustainable growth. Looking beneath the topline numbers ensures that both parties understand the true financial dynamics at play and the potential risks hiding within the balance sheet.
Key areas of focus include:
Payor mix stability. Evaluate the composition of revenue across commercial insurance, Medicaid, Medicare, and cash-pay. Overreliance on a single payor type can leave a facility vulnerable to policy shifts or contract renegotiations.
Revenue recognition patterns. Examine timing differences between service delivery and cash collection. Behavioral health facilities often face 60–120 day collection cycles, making timing analysis critical.
Revenue per patient day. Review revenue by program level and payor to identify where margins are compressing or expanding.
Seasonality. Look for patterns tied to deductible resets, school-year cycles, or holiday periods, which can influence census and revenue.
Cash conversion cycle. Track the time from patient admission through pre-authorization delays, billing, and reimbursement. This reveals whether your business can reliably turn services into cash.
Working capital requirements. Review AR aging, bad debt reserves, and seasonal cash flow fluctuations to anticipate capital needs.
Capital expenditures. Distinguish between maintenance capex (typically 2–4% of revenue) and growth capex tied to expansion. This helps assess both sustainability and investment potential.
From a transaction advisor's lens, these insights drive valuation support, working-capital targets, and purchase price mechanics, and they inform debt capacity and covenant design post-close. In short, the numbers shape both price and the path to realizing it.
Regulatory Compliance Audit
Compliance is the bedrock of a behavioral health operation. Unlike some industries where minor missteps can be corrected quietly, regulatory failures here often have immediate and public consequences. Fines, license suspensions, or reputational damage can unravel years of progress. That's why a comprehensive compliance audit is non-negotiable: It assures that a behavioral health organization is not just meeting today's standards but also prepared for tomorrow's regulatory shifts.
Critical review points include:
Licensure. Confirm valid and current licensure for all levels of care, noting any restrictions, probationary periods, or historical lapses.
DEA registration. For facilities offering medication-assisted treatment, verify that protocols around substances such as buprenorphine and methadone meet both federal DEA and state-specific standards.
Accreditations. Review Joint Commission, CARF, and LegitScript statuses, paying attention to citations, corrective action plans, and timelines for resolution.
Privacy protections. Confirm HIPAA and state-specific compliance. Privacy breaches carry both legal and reputational risks.
Telehealth compliance. As virtual care expands, ensure alignment with evolving telehealth regulations. Non-compliance here is increasingly scrutinized.
Investigations. Check for pending or historical inquiries from CMS or state health departments that could impact operations.
M&A advisors help behavioral health organizations frame their compliance profile as a strength in the sale process. A clean compliance record allows for streamlined diligence and keeps negotiations focused on value. Where there are gaps, we work with management to address issues early or design transaction structures — such as tailored representations, escrow reserves, or specific closing conditions — that protect both sides without putting the deal at risk.
Clinical Outcomes
Clinical outcomes provide a window into the quality and effectiveness of behavioral health care being delivered. For prospective buyers, outcomes are not just clinical measures but business indicators that affect reimbursement, reputation, and long-term viability. Evaluating them in context helps distinguish between facilities that achieve true patient improvement and those that simply manage census numbers.
Key areas include:
Program-specific performance. Break down completion rates by program type (inpatient, outpatient, intensive outpatient (IOP), detox). Blended averages often conceal underperforming segments.
Readmission analysis. High readmission rates may suggest inadequate aftercare, premature discharges, or clinical shortcomings. Root cause analysis helps distinguish between clinical versus operational drivers.
Benchmarking. Compare outcomes with industry standards set by SAMHSA or NIDA. This provides context for performance and improvement opportunities.
When an M&A firm like mine (VERTESS) works with sellers, we emphasize that strong clinical outcomes do more than demonstrate quality of care. They directly support valuation. Solid outcome data strengthens quality-of-earnings analyses, positions the organization favorably in payor discussions, and highlights programs that deserve continued investment. By framing outcomes this way, we help sellers show buyers not just where the business is today, but where future growth and returns can be realized.
Payor Relationship Analysis
No two payor relationships are alike, and in behavioral health, these relationships often determine financial stability. From contract terms to denial rates, payors hold significant influence over how predictable and sustainable revenue streams will be. Diligence in this area uncovers whether the organization has built trust with its payors or if challenges could undermine growth.
Essential review items include:
Authorization approval rates. Examine approval rates by individual payor. Significant differences between insurers can reveal relationship challenges.
Claims management. Look at denial patterns, denial reasons, and appeal success rates. These metrics reveal both billing accuracy and the quality of documentation.
Contract terms. Assess reimbursement rates, renewal timelines, rate-reduction clauses, and exclusivity provisions that could affect future revenue.
Balance of in- and out-of-network billing. Overreliance on out-of-network arrangements may boost revenue short-term but creates long-term risk as policies shift.
Concentration risk. Flag situations where a single payor drives a disproportionate share of revenue.
For buyers and sellers, this analysis anchors revenue durability and shapes renegotiation strategies. It also signals when to employ earnouts or other downside protections, so the deal's economics reflect real contract risk.
Staffing Considerations
Behind every behavioral health facility are the people who deliver care. Unlike many industries, staffing in this sector directly shapes both compliance and clinical outcomes. High turnover, stretched ratios, or insufficient training can ripple outward, eroding the likes of quality, patient satisfaction, and financial performance. That's why staffing diligence is not just about numbers on a chart but about evaluating the culture and systems that support the workforce.
Key considerations include:
Staffing ratios. Compare clinician-to-patient ratios with ASAM and other standards. Ratios directly impact quality and safety.
Turnover analysis. High turnover suggests cultural or compensation problems, driving up costs and reducing consistency of care.
Clinical supervision. Supervisors must meet licensing requirements and maintain continuing education. Effective supervision also drives staff retention.
Credentialing. Ensure all providers are properly credentialed with both regulators and payors.
Specialized training. Review programs for co-occurring disorders, which are prevalent in behavioral health and require advanced expertise.
For sellers, staffing reviews highlight strengths and gaps that buyers will scrutinize. Addressing issues in advance, whether in recruitment, supervision, or compensation, helps position the organization as stable, compliant, and ready to scale after the transaction.
Census & Referral Sources
A healthy census and diverse referral base are among the clearest signals of operational strength for a behavioral health organization. Unlike financial statements, which reflect the past, census data and referral networks point directly to the future. They reveal whether the organization can maintain its patient flow consistently, or whether it is vulnerable to sudden drops when a key referral source dries up.
Important checkpoints include:
Census performance. A rolling 36-month census review reveals trends beyond seasonal fluctuations. Pay close attention to occupancy consistency, average daily census, and utilization by service line.
Referral source diversification. Reliance on any single source for more than ~15% of admissions creates risk. Common vulnerabilities include dependence on one hospital, physician group, or marketing vendor.
Length of stay. Analyze by payor, acuity, and treatment modality to uncover optimization opportunities.
Waitlist accuracy. Verify waitlist data and conversion rates to confirm whether demand is genuine or inflated.
Risk mitigation. Assess geographic diversity of referrals and verify that marketing practices avoid "patient brokering" violations.
From a seller's perspective, census and referral data provide the evidence buyers need to underwrite growth. Demonstrating consistent trends and diversified sources strengthens the valuation case and gives buyers confidence in near-term market development.
Technology & Data Systems
Technology in behavioral health is no longer just about convenience. It's a backbone for compliance, efficiency, and patient care. Facilities are under pressure to track outcomes, manage privacy concerns, and streamline operations in ways that were not expected a decade ago. The right systems can transform an organization's ability to grow and compete, while outdated or poorly integrated platforms can create hidden costs and compliance risks.
Critical areas include:
EHR functionality. Systems should support behavioral health-specific workflows, including ASAM assessments, group therapy notes, and individualized treatment planning.
Outcomes tracking. Real-time reporting and data accuracy are vital for decision-making and demonstrating value to payors.
Interoperability. Integration with payor platforms streamlines billing, authorizations, and data exchange.
Privacy and security. Given the sensitivity of behavioral health records, strong security protocols are non-negotiable.
From a deal standpoint, demonstrating tech readiness helps sellers set realistic integration timelines, clarify capital expenditure needs, and address cybersecurity representations, thereby reducing buyer concerns and helping prevent surprises after closing.
Additional Strategic Considerations
Even the strongest operations can stumble if broader strategic factors are overlooked. Reputation in the community, positioning against competitors, and compliance with local regulations all play subtle but powerful roles in determining long-term success. Due diligence that ignores these elements risks missing deal-breakers hiding in plain sight.
Key items include:
Reputation. Online reviews, litigation history, and media coverage can reveal patient satisfaction trends or ethical issues.
Market position. Assess local competition and demand forecasts to understand growth potential and sustainability.
Real estate and zoning. Confirm that treatment facilities, group homes, and sober living residences comply with local zoning ordinances, which can vary significantly.
Addressing these factors early reduces surprises in confirmatory diligence and keeps the path to a transaction's close — and the post-close value-creation plan — clean and credible.
Integrating Excellence in Behavioral Health M&A Due Diligence
Behavioral health transactions require diligence that goes far deeper than a standard healthcare checklist. From financials and compliance to outcomes and staffing, each area is nuanced and interconnected. Expanding the scope of review to cover every one of these domains provides a full picture of organizational health.
At VERTESS, our specialized approach to behavioral health transactions and guiding clients through due diligence helps ensure that every component receives appropriate attention and analysis. With the changing landscape within behavioral health, it's important to stay current with regular changes and take the necessary time to review each opportunity carefully.
Connor Cruse, CM&AA
As a Managing Director at VERTESS, I advise founders, executives, and investors on mergers and acquisitions (M&A) within healthcare services, with a focus on Behavioral Health, Mental Health, Addiction Treatment, and Outpatient Services. I guide clients through the entire transaction lifecycle, from initial valuation and positioning to buyer outreach, diligence, and final negotiation, whether they’re preparing for a strategic exit, recapitalization, or acquisition.
My experience spans both sell-side and buy-side mandates, representing operators across the U.S., from specialized behavioral health providers to multi-site medical groups. My work is grounded in deep financial analysis, market intelligence, and a hands-on approach to every deal.
Prior to VERTESS, I held senior advisory roles at Iconic and Coast Group, where I built scalable M&A processes and closed complex transactions involving healthcare businesses and associated real estate. I also led business development initiatives, driving a strong pipeline of mandates and lasting relationships with private equity firms, strategics, and founders. I’m passionate about helping healthcare leaders unlock and realize the value they’ve built, whether that means a full exit or bringing on a capital partner. Every transaction is unique, and I strive to guide clients with clarity, strategy, and trust.
We can help you with more information on this and related topics. Contact us today!
If you're planning to sell your healthcare business, there's a good chance that the price you agree to at the outset won't be the price you see at closing. According to a 2021 study by the American Bar Association, a staggering 82% of private company mergers and acquisitions (M&A) transactions included a pre-close price change. In other words, repricing isn't usually the exception. It's generally the rule.
As a healthcare M&A advisor, I've seen firsthand how repricing can derail deal value, create tension between buyers and sellers, and sometimes even cause a transaction to fall apart altogether.
The good news? While not all repricing can be prevented, much of it can be anticipated. In many cases, it can be avoided.
Let's look at why repricing happens, what it typically means for sellers, and the steps you can take to minimize the risk when it comes time to sell your healthcare business.
Why So Many Healthcare Deals Get Repriced
Repricing happens for a number of reasons, and not all of them are within the seller's control. However, understanding the most common causes is a crucial step toward managing the risk.
One of the biggest drivers is working capital. Many healthcare sellers underestimate how large a working capital adjustment can be, especially if they haven't taken time to benchmark the right working capital target based on normalized historical trends. Buyers typically want enough working capital left in the business to keep operations running following the close of a transaction, and if their calculation differs from the seller's, the difference gets priced in.
Another frequent reason for repricing is a change in the business's performance during the deal process. Factors like a slower quarter, an unexpected loss of a key contract, higher-than-expected staff turnover, or supply chain disruption can all trigger concern and prompt buyers to reassess valuation.
Then there are the unavoidable curveballs, such as due diligence findings, financing delays, or changes in regulatory or market conditions, that will shift the buyer's perception of risk. If the deal takes months to close, even macroeconomic developments, like a rise in interest rates, can compel a buyer to revisit pricing.
What Repricing Actually Looks Like
Repricing doesn't always mean a straight drop in purchase price, though that's certainly one possible outcome. More often, it changes the structure of the deal itself.
In many cases, the buyer will still offer the original headline value, but with different terms. A higher percentage of the purchase price may be pushed into an earnout, making it contingent on future performance. Alternatively, the mix of consideration might change — for example, shifting from a cash-heavy deal to one that includes stock and/or deferred payments.
Sometimes, repricing involves renegotiating non-economic terms as well, such as the seller's post-close obligations. In some situations, the deal gets called off entirely, especially if the repricing gap is too wide or trust between the parties erodes.
The reality is that repricing tends to benefit the buyer more than the seller. Once you're under a letter of intent (LOI), your options narrow. Sellers often feel pressure to accept changes rather than start over, especially after months of emotional and financial investment, and the fear of going through the process again only to face more repricing or a lower offer.
What Sellers Can Do to Avoid Repricing
While you can't control market conditions or a buyer's financing, you can take proactive steps to reduce the likelihood of repricing and strengthen your negotiating position if it does come up. Here are some of the steps I recommend sellers take who want to protect their deal value:
Conduct thorough sell-side due diligence. Don't wait for the buyer to uncover issues. Conduct your own diligence before going to market so you can spot — and then resolve — problems early.
Develop a robust, credible CIM. A well-crafted confidential information memorandum (CIM) that tells a professional, positive, and transparent story about your business sets the tone for the deal and helps prevent misunderstandings as the transaction proceeds.
Minimize the signing-to-closing gap. The longer the window between signing an LOI and closing the deal, the more opportunity there is for repricing events to emerge.
Pre-negotiate critical adjustments. Where possible, address working capital targets, earnout parameters, and other key terms upfront in the LOI.
Consider locking in pricing. Fixed purchase price mechanisms can limit exposure to future adjustments, though they're not always feasible. Work with a mergers and acquisitions advisory firm to understand and properly weigh the pros and cons.
Provide an independent quality of earnings (QofE). A sell-side QofE report can increase buyer confidence, accelerate diligence, and often help avoid last-minute surprises that may lead to repricing.
Ultimately, the best defense against repricing is preparation as well as collaboration with experienced healthcare M&A advisors. Buyers will always look for ways to de-risk their investment. They would be foolish not to. As a seller, your job is to anticipate those concerns, address them proactively, and enter the process with clear, defensible numbers and a compelling narrative that discourages any deal-jeopardizing revisions.
Repricing Is Common in Healthcare M&A, But It Doesn't Need to Be Inevitable
It's easy to assume that repricing is simply part of the healthcare M&A process. As the statistic mentioned at the beginning of this column shows, it's certainly prevalent. But that doesn't mean it's unavoidable. With the right preparation and guidance, sellers can enter negotiations with confidence, set better expectations, and increase the odds of closing at the price they and their business deserves.
If you are planning to sell your healthcare business and want to steer clear of the pitfalls of repricing, reach out. I help sellers navigate every stage of the transaction, from due diligence through close, with a sharp focus on preserving value and, when the opportunity allows, maximizing it. Let's discuss how to make your exit smooth, successful, and free from surprises that can be prevented.
Gene Quigley
For over 20 years I have served as a commercial growth executive in several PE-backed and public healthcare companies such as Schering-Plough, Bayer, CCS Medical, Byram Healthcare, Numotion, and most recently as the Chief Revenue Officer at Home Care Delivered. As an operator, I have dedicated my career to driving value creation through exponential revenue and profit growth, while also building cultures that empower people to thrive in competitive environments. My passion for creating deals has helped many companies’ platform and scale with highly successful Mergers and Acquisitions.
At VERTESS, I am a Managing Director with extensive expertise in HME/DME, Diagnostics, and Medical Devices within the US and international marketplace, where I bring hands on experience and knowledge for the business owners I am privileged to represent.
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For solo practice owners, whether you're a primary care physician, dentist, optometrist, dermatologist, or veterinarian, timing is everything when it comes to selling your practice. One of the most common mistakes doctors make is waiting until they're ready to retire before considering a sale. Unfortunately, by the time most doctors are emotionally and mentally ready to exit, they're often not prepared for the reality that to receive maximum value for their practice, they will still need to continue working for several years after the sale.
When private equity firms and strategic buyers acquire a practice, they are not just purchasing a patient list or a few exam rooms. They are acquiring a stream of recurring revenue. To pay a strong multiple on earnings, a buyer needs to feel confident that the business will at least maintain its current cash flow or preferably continue growing. That confidence disappears the moment a buyer learns the solo doctor plans to retire shortly after the sale. Without a solid transition plan, the buyer's biggest fear usually becomes reality: patients leave with their doctor.
Patients often have strong emotional connections with their healthcare providers. When a solo doctor leaves, especially after decades of building trust and rapport, most patients will follow. This is especially true in primary care, optometry, dermatology, and veterinary care, where the relationship is highly personal and longstanding. If a buyer sees that the doctor is stepping away immediately, they will anticipate significant patient attrition and lower their offer, sometimes drastically. In these cases, the deal might be reduced to a simple asset or goodwill acquisition, capturing only a fraction of the practice's true value.
There are exceptions, of course. Dental practices tend to experience less patient churn post-transition, largely because patients often build long-term relationships with hygienists, not just the dentist. However, even in dentistry, buyers usually prefer the seller to remain for one to two years after the sale to introduce the new dentist(s), maintain production levels, and support continuity of care. That transition period, even in more resilient specialties, still plays a major role in deal success and valuation.
Timing Is Key When Selling a Medical Practice Solo
When is the best time for solo doctors to sell their medical practice? Selling three to five years before you plan to retire allows buyers time to bring in a replacement provider(s) who can be slowly integrated into the practice. This transition phase enables patients to get to know the new doctor while the original doctor is still present, which significantly improves patient retention. A gradual handoff allows the buyer to feel more confident about maintaining revenue, and therefore they are more willing to pay a premium for the business.
From a deal structure standpoint, most transactions are not 100% cash at closing. Sellers typically receive around 60% to 70% of the total purchase price upfront, with the remainder paid through an earnout or in the form of equity rolled into the new entity. Additionally, the seller usually stays on post-close as an employee for several years, receiving a market-rate salary. These terms can vary significantly based on specialty, geography, deal size, and negotiation leverage.
All of these point to the importance of working with a knowledgeable mergers and acquisitions advisory firm.
The Value of a Healthcare M&A Advisor
An experienced healthcare M&A advisor can help you position your practice to maximize value, run a competitive sales process to attract multiple buyers, and negotiate favorable deal terms. The advisor can also offer invaluable guidance on what is considered standard, favorable, or non-favorable in today's market. Beyond the financials, an advisor serves as a critical sounding board, helping remove emotion from what is often one of the biggest and most personal financial transactions of a doctor's life.
Unfortunately, not a week goes by without my M&A advisory firm, VERTESS, having a difficult conversation with a doctor who waited too long. These are seasoned professionals who are ready to retire and assume their years of dedication will command top dollar, only to be met with the reality that their practice, with no plan for transition, has lost significant value. At that point, they're often left with two options: continue working for a few more years to maintain value or accept a low offer that reflects only the value of their equipment and charts.
The reality is that most solo doctors don't think about the sale of their practice early enough. It's not something that typically crosses their minds until retirement is just around the corner, but by then, the leverage is gone. The good news is that with proper planning and the right team, doctors can time their exit to maximize both financial return and personal peace of mind.
If you're within five years of retirement, now is the time to start exploring your options. Preparing early gives you more flexibility, stronger negotiating power, and a significantly better shot at walking away with the value you deserve for the business you spent your career building.
At VERTESS, we specialize in helping physicians sell their medical practices with strategy and confidence. Whether you are exploring your options or ready to take the next step, our team is here to help you protect your legacy and maximize value. Start the conversation today. Your future deserves a plan.
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.
We can help you with more information on this and related topics. Contact us today!
Over the last several years, the med spa sector has grown rapidly, powered in part by surging demand for weight loss services — particularly GLP-1 medications. For a period, medical weight loss was a primary driver of rising valuations and transaction volume. Many buyers saw GLP-1-based programs as a strong indicator of client engagement and revenue growth.
But the market has shifted.
Weight loss services are still valuable, and buyers continue to seek them. However, they no longer carry the "weight" they once did, and they are no longer the defining feature of a premium acquisition. Today's buyers are evaluating the entire business model, brand, infrastructure, and a lot more before making offers. Valuations are still strong, but they are increasingly reserved for med spas with broader foundations of success.
Med Spa Industry Snapshot
According to IBISWorld, the U.S. health and wellness spa market experienced a compound annual growth rate (CAGR) of 8% from 2020 to 2025. The average profit margin in the space is nearly 9%, which is fueled by premium services, recurring clients, and efficient business models, as we will discuss further below. Research suggests that 85% of med spa clients are women, primarily ages 35 to 54. They are increasingly committed to regular visits.
At the same time, IBISWorld notes that men represent a growing opportunity, with approximately two out of every five med spas now offering targeted packages for this expanding demographic. Seniors also continue to represent a high-value client segment, particularly for wellness-focused and age-defying treatments.
10 Strategic Priorities for a High-Value Med Spa Exit
What should med spas prioritize today, whether aiming to sell soon or building long-term value to stay competitive and maximize their future attractiveness to buyers? Let's look at 10 areas of focus.
1. Multiple locations
Multi-location operators tell an important story to prospective buyers. They benefit from economies of scale, shared staff, centralized systems, and bulk purchasing power. Buyers see these businesses as lower risk, easier to replicate, and better positioned for regional or national expansion. Staff recruitment is also easier for multi-site operators; job seekers are more confident in employers with proven history and infrastructure as well as a visible footprint.
In addition, once ownership and leadership have successfully navigated the challenges of opening a second location, expanding further often becomes more efficient and less daunting. The experience gained, ranging from site selection and staffing to replicating operational systems and marketing strategies, helps streamline future openings. Lessons learned from the initial expansion help reduce or avoid costly missteps and allow for more confident, scalable growth.
2. Diversification of services
Single-service med spas, or those with just a few services — no matter how profitable — face challenges in today's market. Buyers now expect full-line offerings that appeal to a range of clients and their needs.
In no particular order, the most valuable med spa businesses offer most if not all of:
Neurotoxins (e.g., Botox, Daxxify)
Dermal fillers and advanced injectables
Laser skin rejuvenation and resurfacing
Hair removal and restoration
Body contouring and fat reduction
Hormone therapy and hormone replacement therapy (HRT) monitoring
IV hydration and vitamin drips
Medical weight loss
Skincare product retail
Med spas must begin preparing for the next wave of wellness treatments, with peptides likely to take a leading role. These small proteins act as signals in the body, helping to boost collagen, burn fat, build muscle, and support healing. While often delivered through injections, peptides are also available in topical creams and oral supplements. Med spas are increasingly using them to address a wide range of client goals, including smoother skin, fuller hair, weight loss, better sleep, hormone balance, and improved energy. Popular peptides (e.g., CJC-1295, BPC-157, GHK-Cu) are becoming integral components of personalized plans designed to enhance both appearance and overall well-being. As more clients seek treatments that go beyond aesthetics to support full-body health, med spas that integrate peptide therapy will be better positioned to meet this rising demand.
Another important consideration is that med spa clients are gravitating toward "less is more." That means fewer visits, longer-lasting results, and little to no recovery time. That also means med spas need to stay up to date on the latest injectables, skin treatments, and fat reduction technologies. Non-invasive therapies are in especially high demand, and products must be regularly updated to reflect new innovations.
3. Investment in technology and automation
Clients turn to med spas not only for results, but for a sense of ease, confidence, and personalized care. That experience begins well before treatment. Top-performing med spas deliver on this expectation by using digital platforms for scheduling, intake, consents, communication, and payment, making it easy for their clients to learn about, access, and receive services. Online calendars that span multiple locations offer added flexibility, reinforcing the sense of convenience and control clients are seeking.
Beyond improving the client journey, the use of technology to achieve greater automation helps reduce administrative workload, aids in controlling staffing costs, and supports more efficient operations that translate to increased profitability.
4. Recurring business and retention strategies
Most clients visit their med spas of choice monthly, or at least every few months. Successful businesses take steps to maximize this regularity through the likes of memberships, loyalty programs, and bundled packages. Communication tools such as:
E-newsletters
Text message (SMS) reminders
Exclusive event invitations
Targeted promotions
… all help drive rebooking and reengage inactive clients. These mechanisms also support cross-selling: for example, a client enrolled in a weight loss program may be introduced to contouring, skin tightening, or hormone optimization services. Clients should always be aware of new offerings, especially those that support their existing goals or encourage them to think about new objectives.
5. Website, SEO, and digital advertising
A med spa's digital front door can matter as much as the physical one. A well-structured, mobile-friendly website with online booking, client education, and visible testimonials can significantly improve conversion. Search engine optimization (SEO) and pay-per-click campaigns can help capture demand and drive new leads. Websites should be updated frequently to reflect new services, products, trends like peptides and the next wave of GLP-1 medications, as well as testimonials supported by photos and videos.
6. Social media presence
Platforms like Instagram, TikTok, YouTube — and Facebook, which remains relevant for certain client segments — continue to shape client expectations and serve as influential sources of information, inspiration, and business and service discovery. Many younger clients find their med spa provider on social media before visiting a website. There is a rising influx of clients in their 20s, driven by social media and shifting beauty norms. Spas must consistently post:
Client testimonials
Before-and-after photos
Treatment walkthroughs
Practitioner spotlights
Service-specific videos
Location tours
This content builds trust and inspires bookings. Many top-performing med spas are offering free or discounted services to influencers and local celebrities in exchange for social posts, a strategy shown to often yield a strong return.
7. Online reviews and reputation management
Prospective clients vet providers by reading reviews. A few negative posts can deter dozens of prospects. Strong med spas proactively solicit Google and Yelp reviews, monitor their profiles, and respond to feedback professionally. Tools that automate these requests and monitor platforms can help protect and elevate brand reputation without requiring significant manual labor.
8. Interior and exterior aesthetics
First impressions matter. Clients expect med spas to look and feel modern, clean, and upscale. Many high-performing locations resemble boutique hotels or ambulatory surgery centers. Design is not just cosmetic; it reflects a med spa's brand, quality, and safety standards. Every detail, from landscaping and signage to lighting and treatment room finishes, should consistently tell a story of professionalism, cleanliness, and comfort.
9. Physician partnerships and referral networks
In markets with physician referral potential, building those relationships can expand a med spa's client base, especially for services like hormone therapy, weight loss, or skin conditions that overlap with dermatology or internal medicine. Some med spas also bring physicians on board as medical directors or brand ambassadors. This relationship can lend credibility and ensure compliance with state-specific supervision rules.
10. Staff training and certifications
While a med spa's services may attract clients initially, it is the staff who often bring them back through engagement, skill, professionalism, and the quality of the relationships they build over time. Buyers look for teams with certifications in their specialty areas, ongoing training programs, and low turnover. Skilled staff enable more efficient and effective expansion of services and drive client retention. Training in cross-selling, such as suggesting skin tightening to weight loss patients, can significantly lift revenue per visit.
Additionally, having a licensed medical director (and clear clinical oversight protocols) is essential, particularly for GLP-1 prescriptions, hormone therapies, and emerging treatments like peptides.
Integrating Weight Loss into the Bigger Picture
Weight loss services, particularly GLP-1 programs, still drive med spa traffic and generate strong revenue. But today's best med spas treat these programs as part of a broader wellness journey. As clients lose weight, they need support in other areas:
Body sculpting to address loose skin
IV therapy and nutritional counseling to support metabolism
Hormone balancing for longer-term success
Skin rejuvenation to match new body confidence
Cross-selling these services increases client value and improves outcomes. Looking ahead, next-generation GLP-1s — both injectable and oral — as well as peptide-based therapies, are likely to drive further change. Med spas that stay informed, anticipate these developments, and are prepared to launch supporting programs both compliantly and competitively will continue to stand out.
A Positive Transaction Outlook for Med Spa Owners
The med spa sector remains highly attractive to strategic and financial buyers. Demand for self-care, aesthetics, and preventive health is not going away. But the nature of a "transaction-ready" med spa business has evolved.
Buyers of med spa are now looking for strong fundamentals, including scalable operations, diversified services, a loyal client base, committed staff, and strong digital infrastructure. They want a brand, not just a business.
At VERTESS, one of the leading healthcare mergers and acquisitions companies, we specialize in helping med spa owners evaluate their readiness for sale, identify opportunities to strengthen their market position, develop a business exit strategy, and execute successful transactions. Whether you are thinking about a transition this year or laying groundwork for the future, the right plan — and the right team — can make all the difference.
If you are a med spa owner considering a sale or just want to better understand your business's value, reach out. We're here to help you explore what is possible for your med spa.
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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For most healthcare business owners, selling your company is one of the most important — and emotional — decisions you'll ever make. Whether you're operating in services, tech, or care delivery, it's easy to underestimate how complex the sale process can be.
At VERTESS, we've represented founders across the healthcare spectrum. And while no two businesses are the same, we've seen five avoidable mistakes that can dramatically impact deal outcomes — including sale price, timeline, and whether the deal closes at all.
I'll share these five mistakes and offer recommendations to help you avoid them when selling your business.
Waiting Too Long to Start Planning Many healthcare business owners delay exit planning because they're too busy, think the business isn't “ready,” or believe they'll know when the time is right. Unfortunately, the market doesn't always wait.
We've seen deals where external factors, like regulatory changes, payer reviews, and staffing issues, surfaced just as an owner was ready to go to market. In one situation, a major payer reversed payment decisions on a block of previously approved claims during diligence. While unrelated to the sale, the timing disrupted cash flow, delayed closing by several months, and forced deal terms to be restructured.
Avoid it: Start preparing early. Even if a sale is 1–2 years out, a conversation now can help you identify risks, strengthen value, and be ready to act when the opportunity is right.
Poor Financial Visibility (and No Quality of Earnings Prep) Many healthcare companies are run with a focus on tax efficiency, not buyer readiness. While that makes sense operationally, it can be a major roadblock during diligence.
We've worked with owners who believed they were generating millions in EBITDA, only to discover during a quality of earnings (QoE) audit that adjusted earnings were far lower, sometimes even break-even. In other cases, multiple QoE reviews failed to support the seller's original claims, leading to buyer re-trades or failed transactions.
Avoid it: Don't wait for a buyer to uncover issues. Work with your advisor to prepare a defensible financial package and run a sell-side QoE, if needed. Clean, accrual-based financials give buyers confidence and protect your valuation.
Overestimating Business Value and Future Earnings It's natural for owners to have strong expectations about the value of their business. But emotional attachment, over-optimism about future earnings, or reliance on hearsay multiples can set you up for disappointment.
We've seen situations where owners projected a strong finish to the year — and adjusted pricing accordingly — only to fall short of forecasts, requiring a painful price reset late in the process. This erodes buyer trust and adds unnecessary tension to closing.
Avoid it: Let the numbers lead. Use trailing 12-month performance as a baseline and be realistic about projections. Your M&A advisor can help bridge the gap between aspiration and market expectations.
Telling Staff Too Early Sharing news of a potential sale with your company's staff too early — even with good intentions — can backfire. While transparency with your team is important, timing is everything.
We've supported clients who announced their transaction to staff before signing a letter of intent, only to have key employees — including clinical and operational leaders — leave before the deal closed. This not only disrupted operations but also raised red flags for the buyer, who questioned the business's ability to retain talent through a transition.
Avoid it: Develop a strategic communication plan with your advisor. Limit early disclosures to essential team members under NDA and wait until deal terms are firm before sharing more broadly. Maintaining continuity and calm during the process is critical to preserving value and getting to the finish line.
Making the Business Too Dependent on the Owner If your business can't function without you, buyers will see risk — and discount what they offer accordingly. Buyers are looking for systems, leadership teams, and documented processes that allow for a smooth post-transaction handoff.
We've seen deals where the absence of a second-in-command or clear operational playbook created serious buyer hesitation. Even with strong financials, transition risk can drag down value or delay closing.
Avoid it: Invest in leadership, empower others, and systematize your operations. If you're the only one who knows how things run, that's a liability — not leverage.
Bonus Mistake: Going It Alone We've had countless conversations with sellers who attempted to run a deal themselves or hired a generalist broker with no healthcare experience. The result? Missed red flags, underpriced deals, or failed closings.
The stakes are too high to wing it — and too complex to learn on the fly.
Avoid it: Partner with an experienced M&A advisor who knows the healthcare space. A good advisor won't just find you a buyer — they'll help you find the right one, structure a clean deal, and navigate every twist and turn along the way.
The Key to a Successful Healthcare Business Exit Strategy Selling your healthcare business is one of the most significant financial decisions you'll ever make. The key to doing it well isn't luck — it's preparation.
If you're starting to explore your options, even quietly, we're here to help. VERTESS specializes in healthcare transactions, and we are recognized as one of the leaders in providing expert guidance concerning mergers and acquisitions in the healthcare industry. We work with owners across the country to ensure they get the value and exit they deserve.
Reach out to us today, and let's start a confidential conversation.
Jack Turgeon, MBA, CM&AA
As a Managing 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.
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As 2025 progresses, hospice and home health services are experiencing significant growth, driven by the likes of demographic shifts, technological advancements, and a dynamic mergers and acquisitions (M&A) environment. With an aging population increasingly favoring care at home, service providers within these sectors are expanding their capabilities, while M&A activity reflects a strategic push for scale and innovation.
This column dives into these topics, further examining the current state of hospice and home health and offers a professional analysis of the M&A trends shaping their future, enriched by insights from my attendance at the Home Care 100 conference earlier this year.
An Overview of Today's Hospice and Home Health Sectors
The demand for hospice and home health services is high, and perhaps at an all-time high. With approximately 60 million Americans aged 65 and older, the growing preference for aging in place is reshaping care delivery. To account for this demand, hospice providers are broadening their offerings, integrating palliative care to address chronic conditions earlier in the patient journey, supported by telehealth platforms and remote monitoring technologies designed to enhance end-of-life care and support.
Home health, meanwhile, is evolving to manage higher-acuity cases, exemplified by the expansion of hospital-at-home programs. The Centers for Medicare & Medicaid Services (CMS) has extended its Acute Hospital Care at Home waiver through September 2025, with over 300 participating hospitals, signaling a structural shift toward in-home acute care.
Technology is essential to enabling the growth of home care. Solutions like those powered by artificial intelligence (AI) and the aforementioned remote patient monitoring are helping optimize care delivery, reduce hospital readmissions, and alleviate pressure on staffing resources, which are greatly strained. Larger providers are leveraging their scale to secure more favorable reimbursement rates from Medicare Advantage plans, which often offer lower payments than traditional Medicare. Smaller agencies, however, face persistent challenges, including workforce shortages and financial strain, creating a competitive divide within the industry, and one that is likely to grow further.
M&A Outlook: A Strategic and Financial Perspective
Through a little more than the first quarter of 2025, it's apparent that the M&A landscape for hospice and home health is resurging, following a roughly 9% decline in health services deal volume through late 2024. We see several factors driving this momentum, including declining interest rates, a business-friendly regulatory climate under the new administration, and substantial capital reserves. Consider that private equity (PE) firms alone held $2.6 trillion globally by mid-2024.
Let's take a closer look at some of the most significant forces influencing the hospice and home health sectors.
Economic Tailwinds
The Federal Reserve's rate cuts in late 2024 have lowered borrowing costs, facilitating deal financing. Combined with significant unallocated capital, as noted in PwC's 2025 U.S. Deals Outlook, the environment is ripe for investment. Hospice and home health, with their stable cash flows and growing market, are particularly attractive targets for investors.
Key Players
Two buyer groups dominate these sectors. Strategic acquirers, like large home health operators, are pursuing acquisitions to expand geographic coverage and integrate advanced care models. PE firms, conversely, are generally targeting agencies with strong fundamentals or technological differentiation, often with an eye toward future exits.
While the blocked UnitedHealth-Amedisys merger in 2024, which will head to mediation in August, underscored regulatory risks, smaller transactions are proceeding with less friction.
A particularly noteworthy development in 2025 is the number of instances where we are seeing strategic buyers being outbid, often by PE firms or other aggressive acquirers. This shift marks a notable change from the typical dynamics seen in previous years.
Acquisition Priorities
Technology and scalability are top priorities. Agencies employing one or more of telehealth, AI-driven care coordination, and data analytics are highly sought after for their potential to enhance efficiency and outcomes while lowering costs. The fragmented nature of the hospice and home health markets — which are dominated by small operators — fuels consolidation, as buyers seek to build regional dominance or establish platforms for long-term growth.
Market Dynamics
Valuation negotiations remain a challenge, with sellers seeking premiums and buyers aiming to capitalize on market opportunities. However, the urgency to deploy capital and a robust pipeline of assets are aligning interests, according to PwC's analysis.
Additionally, EY's 2025 health outlook highlights a rise in vertical integration, with health systems acquiring home-based care providers in an effort to streamline patient care pathways. A potential relaxation of antitrust enforcement may further accelerate activity, though new Hart-Scott-Rodino Act filing requirements, effective February 2025, are increasing due diligence for larger deals.
Challenges and Resilience
Workforce shortages and reimbursement pressures from Medicare Advantage plans continue to strain smaller providers, which we are seeing as a motivating factor to push owners toward a sale. Regulatory oversight remains a consideration as well, but the sector's resilience is evident as deal volumes remain around 70% above pre-COVID levels, which we see as reflecting sustained investor confidence.
Pennsylvania Perspective
Activity in Pennsylvania, where I am from and represent many clients, offers a compelling lens into broader trends in hospice and home health, which are shaped by the state's demographics and healthcare dynamics. With over 20% of its 13 million residents aged 65 or older, Pennsylvania mirrors national aging trends but adds a rural-urban divide that complicates care delivery. We see providers like UPMC and Geisinger leading the charge in hospital-at-home adoption. Organizations such as BAYADA Home Health Care, which has a significant presence in Pennsylvania despite its New Jersey (Pennsauken Township) headquarters, are expanding services to meet demand. As in other states, rural areas, however, struggle with caregiver shortages, making technology a critical bridge.
A notable trend in Pennsylvania is providers working to narrow networks and raise barriers to entry for managed care organizations (MCOs). With MCOs dominating the state's Medicaid and Medicare Advantage markets — think Highmark Wholecare or UPMC Health Plan — home health and hospice agencies are tightening referral networks to favor longstanding partners. This strategy aims to protect revenue streams by limiting MCOs' ability to dictate terms or onboard new entrants, but it also restricts patient access to care options. This tension is a defining feature of Pennsylvania's 2025 landscape, and we expect to continue to see efforts around balancing provider autonomy with market pressures.
Insights from Home Care 100 2025
I had the privilege of attending January's Home Care 100 conference in Florida. This event is largely a gathering of C-level leaders in home-based care. The meeting, themed around optimizing financial performance and exploring M&A opportunities, offered a front-row seat to the industry's pulse. While in attendance, I connected with CEOs and innovators during sessions that drilled into leveraging technology, such as AI for predictive care, and navigating payer relationships amid consolidation.
One standout moment for me was a panel on workforce strategies, where leaders shared how tech-enabled solutions are easing staffing woes. The meeting offered many opportunities for networking, and through these I gained insights on how hospice and home health providers are allocating more resources toward aligning operations with value-based care. Conversations with peers also confirmed that the hospice and home health M&A buzz I had been tracking was part of a broader nationwide trend. My experience at Home Care 100 underscored the home health sector's momentum and the critical role of strategic partnerships in driving growth.
Implications for Hospice and Home Health in 2025
The hospice and home health sectors are at a pivotal juncture, with organizations working to balance unprecedented demand with operational challenges. Providers are adopting innovative technologies and care models to meet patient needs, while larger organizations are seeking to gain a competitive edge through scale and payer negotiations. From a mergers and acquisitions perspective, I expect to see heightened activity through the end of the year as strategic and financial buyers work to capitalize on favorable conditions to acquire assets that offer growth potential and operational synergies.
For industry stakeholders, it is clear that success will largely hinge on adaptability, including the ability to effectively leverage technology, navigate reimbursement complexities, and position organizations for consolidation. Through the first several months of 2025, I view the hospice and home health sectors as not only meeting the moment but also serving as a focal point for investment and transformation in the broader healthcare landscape — a reality brought into sharp focus through my time at Home Care 100.
If you are an owner of a hospice or home health organization and are interested in discussing how you can capitalize on these trends through the sale of your business, please reach out to VERTESS. We are a team of expert advisors on healthcare mergers and acquisitions and would welcome the opportunity to speak with you about your company and help you begin to formulate and execute a successful exit strategy business plan.
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.
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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.
The healthcare revenue cycle management (RCM) sector is experiencing record merger and acquisitions (M&A) activity. At VERTESS, we are seeing private equity firms and strategic acquirers aggressively pursuing acquisitions of RCM companies big and small, with increased interest in those companies that offer artificial intelligence (AI)-driven automation, scalable technology, and strong financial performance. As healthcare providers struggle with rising administrative costs, payer rules, and increased patient financial responsibility, there is heightened demand for efficient, technology-enabled RCM solutions.
For healthcare RCM business owners considering an exit, 2025 presents a prime opportunity to sell at what could be a premium valuation. However, not all RCM businesses are equally attractive to buyers. The most valuable companies are those with qualities like recurring revenue, automation-driven efficiencies, a diverse client base, and strong earnings before interest, taxes, depreciation and amortization (EBITDA) margins.
Whether you're looking to sell your RCM business in the next 12-24 months or want to position it for future growth, understanding the current market and what buyers are looking for are essential.
Overview of the Healthcare Revenue Cycle Management Market
Over the past several years, the healthcare RCM market has experienced significant consolidation, and there's no indication this momentum will slow down soon. Consolidation is being driven by a variety of factors, such as increased financial pressures on healthcare providers and a shift toward technology-driven solutions. The ongoing complexity of reimbursement, rising out-of-pocket costs, and administrative inefficiencies are among the reasons that have elevated demand for automation, interoperability, and outsourced RCM services.
Private equity and strategic acquirers have increasingly focused on business-to-business (B2B) RCM solutions while largely avoiding direct-to-consumer healthcare segments, as these have struggled more with inflation coupled with consumer spending challenges. The B2B RCM market has experienced strong M&A activity, with the middle market attracting competitive valuations and a record number of private-equity-led platform acquisitions.
5 Key Trends Driving Healthcare RCM M&A Activity
Here are five of the trends that we're seeing as significant factors contributing to the elevated interest in healthcare RCM companies.
1. AI and automation reshaping RCM It's clear that the adoption of AI and automation is transforming the RCM landscape, with 98% of healthcare organizations indicating they have implemented or are planning to implement AI strategies to enhance efficiency and financial performance. AI-powered automation has become more integral to coding, claims processing, and eligibility verification, significantly reducing manual errors and administrative burdens.
The increasing reliance on AI has driven a surge in RCM M&A activity, with AI-driven RCM transactions representing 21% of deals in early 2023, compared to 11%-12% in prior years. Major acquisitions highlight this trend, including CloudMed's $4.1 billion acquisition by R1 RCM, with CloudMed having optimized reimbursement workflows using AI, and Apixio's acquisition by New Mountain Capital, with Apixio having leveraged AI-powered risk adjustment and analytics to improve financial outcomes.
2. Private equity firms leading the RCM buyout boom Private equity firms are the dominant force in healthcare RCM M&A, with nearly half of healthcare information technology (IT) transactions in 2024 involving private equity buyers. This figure marks a 20% year-over-year growth. Investors are aggressively pursuing buy-and-build strategies, acquiring smaller, specialized RCM firms and integrating them into scalable platforms to enhance value.
Noteworthy transactions include Francisco Partners' $1.1 billion acquisition of AdvancedMD, which expanded its cloud-based practice management and RCM software capabilities, and Petal Solutions' acquisition of Medcom Billing Systems, which strengthened its medical billing automation portfolio. Additionally, Elevate Patient Financial Solutions, backed by Edgewater and Frazier Healthcare, acquired NYX Health Eligibility Services, reinforcing its Medicaid-focused RCM solutions.
3. M&A valuations remain strong RCM companies continue to command high valuations, particularly in the middle market, where competition among investors is fierce. From 2021 to 2024, the average enterprise value (EV)/revenue multiple for RCM deals reached 6.1x, significantly outpacing the 4.4x average from 2018 to 2020. The middle market — transactions under $500 million — has been particularly active, making up more than 80% of sector deals in 2024 as both private equity firms and strategic acquirers compete for companies with highly desirable qualities like recurring revenue models, scalable technology, and strong contract structures. The combination of predictable cash flows and growing demand for AI-driven automation has positioned healthcare RCM as one of the most sought-after healthcare IT investment categories.
4. Consolidation of RCM technology firms The healthcare RCM market remains highly fragmented. This provides a strong M&A pipeline for platform acquisitions and roll-up strategies. Large healthcare IT vendors are actively acquiring RCM firms to integrate AI, automation, and risk adjustment tools into their solutions rather than building in-house capabilities. Industry leaders, such as Waystar, R1 RCM, and Epic, are expanding their product offerings in an effort to enhance revenue cycle efficiency and reduce administrative complexity. The scale of consolidation is further evident in Clayton, Dubilier & Rice and TowerBrook Capital Partners' $8.9 billion take-private acquisition of R1 RCM. This deal reinforced the attractiveness of end-to-end RCM platforms.
5. B2B healthcare RCM platforms outperforming direct-to-consumer healthcare IT As referenced earlier, B2B healthcare RCM platforms have become the preferred investment target compared to direct-to-consumer healthcare IT. B2B healthcare IT transactions accounted for about 72% of total sector deals in 2024, reflecting a more than 24% year-over-year increase. In contrast, direct-to-consumer healthcare IT companies (e.g., telehealth providers) saw a nearly 29% decline in deal volume due to issues including market saturation and economic pressures.
Private equity and strategic acquirers are prioritizing B2B RCM vendors with qualities like high customer retention, scalable software, and mission-critical revenue cycle capabilities. The shift toward enterprise-focused, technology-driven revenue cycle solutions reflects broader trends in healthcare IT, where automation, interoperability, and financial optimization are paramount.
5 Key Focus Areas for Healthcare RCM Business Owners Preparing for an Exit in 2025
Now let's look at five areas healthcare RCM business owners should focus on if they are planning for or considering a sale of their company this year.
1. Strengthening recurring revenue and contract stability Buyers, especially private equity firms and strategic acquirers, prioritize healthcare RCM businesses with predictable, recurring revenue streams and long-term client contracts. Owners should work to secure multi-year contracts with providers, payers, and health systems as this will help demonstrate revenue stability. Reducing customer churn and increasing contract renewal rates will enhance valuation and make the business even more attractive to investors. In addition, implementing tiered pricing models, value-based pricing, and/or bundled service agreements can further solidify revenue predictability and enhance the appeal of the company.
2. Investing in AI and automation for operational efficiency With AI-driven automation playing an increasingly pivotal role in healthcare RCM M&A, owners should be working to ensure their business integrates the likes of AI-powered coding, claims processing, and denial management solutions. We are seeing investors being particularly drawn to scalable, tech-enabled RCM platforms that improve financial outcomes for providers.
Partnering with companies that offer solutions or developing AI-enhanced revenue intelligence tools can differentiate the business while improving EBITDA margins, which will then increase deal value. Companies lacking AI capabilities may struggle to compete in a market where automated, data-driven decision-making is quickly becoming the standard.
3. Expanding market reach and diversifying client base Client diversification reduces risk and increases buyer appeal. Owners should look for ways to expand into high-growth verticals like behavioral health, dental, ambulatory surgery centers, dermatology, and physical therapy, where RCM services are in demand. Reducing client concentration risk — where a few large customers contribute to a disproportionate share of revenue — will be critical in maximizing valuation.
Additionally, broadening payer mix to include commercial insurance, Medicare, Medicaid, and value-based care arrangements can strengthen revenue resilience. Healthcare RCM businesses that serve a diverse client base across multiple provider specialties and geographies tend to attract stronger acquisition interest and achieve elevated multiples.
4. Optimizing financial performance and profitability Potential buyers closely evaluate key financial metrics like gross margins, EBITDA, and revenue growth trends. RCM business owners should focus on improving their cash flow efficiency, reducing days sales outstanding (DSO), and increasing clean claim rates to enhance financial performance. Streamlining internal operations through automated billing, outsourcing non-core functions, and implementing AI-driven collections processes can drive margin expansion.
5. Building a strong management team and scalable infrastructure Investors look for businesses with experienced leadership teams and scalable infrastructure that can support rapid growth post-acquisition. Healthcare RCM owners should invest in hiring (if needed) and retaining top RCM talent, strengthening their compliance teams, and ensuring strong leadership succession plans are in place. A well-prepared management team with clear growth strategies and efficient back-office operations will increase buyer confidence and valuation.
Additionally, maintaining a robust technology stack with interoperable solutions that integrate easily with electronic health record (EHR) systems, payer platforms, AI tools, and other solutions will improve operational scalability.
As M&A activity in the healthcare RCM sector continues to surge, business owners who proactively position their companies for an acquisition will have the greatest opportunities for a profitable exit. Whether you're looking to sell now or in the next few years, the key to securing multiple, realistic offers for your company and maximizing valuation is ensuring that your business meets the criteria today's investors are actively seeking — from AI-driven efficiencies and revenue stability to strong EBITDA and a scalable management team.
At VERTESS, we work exclusively with healthcare business owners to help them strategically prepare for an exit, negotiate the best possible deal, and achieve a successful and smooth post-transaction transition. Our deep relationships with private equity firms, healthcare IT investors, and strategic acquirers allow us to connect healthcare RCM company owners with the right buyers at the right time — better ensuring that they receive the highest valuation for their business.
Additional sources: Pitchbook, Bain and Co.
Jack Turgeon, MBA
As a Managing 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!
By: David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC, CAIM
Ambulatory surgery centers (ASCs) are a hot commodity, attracting increased interest from hospital and health systems, surgical facility operators (e.g., Surgery Partners, SCA Health), private equity firms, and commercial payers. Given this increased interest from strategic and financial buyers, it's not surprising that we are hearing from a growing number of ASC owners wondering about the value of their facilities.
Before we dive into the factors influencing ASC value and discuss surgery center valuations, it's helpful to get a lay of the ASC land. The massive changes in ASC scale and scope in recent years continue to propel growth but also bring challenges. A larger number of ASCs are performing a broader set of procedures than ever, including the likes of total joint replacements and a variety of cardiovascular treatments, but labor shortages, inflation, and reimbursement pressures are hurting their ability to increase profitability.
Outpatient care will continue shifting away from inpatient (e.g., hospital) settings toward ASCs. Evolving medical and technology advances will further accelerate the transition as patients seek safe, affordable care and payers look to reel in rising healthcare costs. The rise in the number of ASCs to the point where the number of Medicare-certified surgery centers (~6,400) has surpassed the number of hospitals (~6,100) is in part due to the significant cost savings of procedures performed in ASCs compared to onsite hospital surgeries, which allows for lower reimbursement rates and patient expenses. The migration of care into ASCs, fueled by payer pressures, is one the reasons many hospitals are seeking to develop or partner with ASCs. Consulting firm Avanza Healthcare Strategies notes that more than 7 out of 10 hospitals and health systems intend to continue investing in and affiliating with ASCs. The trend is up 8% since 2019, with the firm attributing the shift to many factors, including consumer demand and the need to decrease costs. Physicians remain interested in starting ASCs or becoming minority or majority owners to allow them to obtain distributions.
Key ASC Risk Drivers
Similar to most investable assets, the value of ASCs is a function of risks versus rewards. Key risk drivers include:
Location: Being located in a certificate of need (CON) state and/or being located near key suppliers, solid referral sources, ample labor supply, low concentration of other ASCs, and good patient demographics are all positives.
Payers: Having low reliance on out-of-network payers is preferable.
Reimbursement: Having low dependence on procedures with low reimbursement rates helps reduce risk.
Operational dependence: Having high reliance on one physician, one referral source, or one senior executive who would cause a dramatic decline in revenue if they were to leave the ASC raises risk.
Non-competition/non-solicitation agreements: Having little concern that employees or independent contractors would leave the ASC and immediately become a competitor or would steal away key employees reduces risk.
Multi-specialty vs. single-specialty ASCs: Multi-specialty ASCs that have a low concentration of services/procedures provided relative to total revenue are considered less risky than single-specialty ASCs.
Other issues impacting the riskiness of a particular ASC include:
Performance: The overall performance of an ASC relative to its peers/competitors. An ASC that historically underperforms its peers will be viewed as more risky than one that at least performs as well as like facilities.
Historical legal issues: Legal fees will impact valuations via lower profitability, while a history of numerous legal issues will increase buyers' perception of riskiness.
Turnover: An ASC with relatively high employee, patient, and/or referral source turnover will be looked at as more risky than otherwise.
Collections issues: An ASC with a history of billing/collections issues, high reimbursement denials, longer than normal collection periods, and higher than normal write-offs for uncollectable accounts receiable (A/R) will be deemed riskier than normal.
Malpractice claims history: An ASC with numerous malpractice claims may lead buyers to increase their perception of riskiness.
Patient readmissions: An ASC with an above-average hospital readmission rate will increase buyers' perception of riskiness.
Compliance: An ASC with a history of regulatory compliance, accreditation, and/or licensure issues will be deemed more risky.
Some people might argue that the above-listed risk drivers are qualitative matters rather than quantitative. In reality, these risk drivers ultimately impact overall performance and are therefore quantitative relative to creating cash flow for the owners/investors of the ASC.
Relative size also matters regarding the market value of ASCs. There is higher demand by buyers for ASCs with higher revenue and organizations with multiple locations. Higher demand will lead to higher valuations.
Current ASC Valuations
Let's discuss ASC valuations. Below is a breakdown of the current estimated market values based on multiples of earnings before interest expense, income taxes, depreciation, and amortization (EBITDA) of ASCs by size and perceived riskiness:
Market Valuation*
Annual Revenue<$15 million$15 to $30 million>$30 million
Low-risk ASCs 4.0x to 4.5x 4.5x to 6.0x 6.0x to 8.0x
Moderate-risk ASCs 3.5x to 4.0x 4.0x to 5.5x 5.5x to 7.5x
High-hisk ASCs 2.5x to 3.5x 3.0x to 4.0x 5.0x to 5.5x
For example, a low-risk ASC with $9.0 million in annual revenue and an EBITDA of $1.8 million (20.0% EBITDA margin) will have a market value in the range of $8.1 million to $10.8 million.
*Actual market value is also a function of (1) quality of offering memorandum and reporting, (2) quality of intermediary representation, (3) historical performance of the company, (4) future growth prospects of the company, (5) quality, type, and number of potential buyers, (6) current and projected macroeconomy, (7) current and projected industry stability and growth, (8) and numerous other factors.
Note that acquisitions of ASCs are typically stock purchases, as opposed to asset purchases, and are done on a cash-free/debt-free basis. The seller(s) normally distribute their cash balances before closing the sale/purchase and after paying off all indebtedness.
Buyers typically undertake a Quality of Earnings (QoE) analysis. A QoE is a comprehensive examination of a company's financial performance, detailed revenue analysis, review of accounting policies, assessment of company management, examination of company operations, and reliability of financial reporting. We often recommend that ASC owners undertake a seller's QoE before going to market. By doing so, owners can take steps to mitigate issues uncovered during the QoE process, thereby reducing perceived riskiness.
Moreover, the QoE process helps sellers and their mergers and acquisitions (M&A) advisor to better identify discretionary and non-recurring expenses that are add-backs to EBITDA to best reflect the cash flows generated by the ASC to potential buyers.
What Is Your ASC Worth? Receive a Market Valuation From VERTESS. Whether or not you're considering selling your ASC, knowing the current market valuation can provide you insight into deciding where to go. You might be trying to determine where you want your ASC to be five years from now. A good roadmap begins by knowing where you stand today. A market valuation of your ASC is a great start to knowing where you are now.
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 more than happy to provide you with a current market valuation of your ASC.
David Coit 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.
We can help you with more information on this and related topics. Contact us today!
In the business world, the concept of the "second bite of the apple" refers to a business owner retaining some ownership of their company (i.e., rollover equity) following a sale to a strategic partner and then the owner earning another payment when the strategic partner sells the company. Thus, the mergers and acquisitions (M&A) meaning of the "first bite of the apple" is when the owner initially sells the majority of their company to a strategic partner.
However, I would argue that defining the bites of the apple in this manner overlooks a lot of the details of the owner's journey to this point in the life of their business. Another way to look at these bites is that the first bite of the apple occurs when an owner starts their business. This bite can be bittersweet. It involves joy, worry, sadness, and the many difficulties that business owners typically will experience and endure on their ownership journey. The second bite of the apple is when the owner capitalizes on their hard work through a sale, leading to a more comfortable retirement or enabling the owner to pursue another venture — all because of the effort and hard work that went into building a successful first company.
To capitalize on the metaphors described and maximize the enjoyment of the second bite of the apple requires getting the first bite right. When starting a business, there are a number of decisions an owner will need to make outside of determining what services the company will provide. Let's look more closely at a few of the most important ones and what new business owners need to know about them. Note: While missteps concerning these decisions are not uncommon, owners that recognize and address their mistakes can better ensure their second bite is as sweet as it can be.
Debt
All new businesses take on debt. Be precise and strategic about how you take on this debt. Ensure the debt does not over leverage your business and can be paid even if revenue declines due to normal deviations. You do not want to compromise your ability to maintain credit and compromise your working capital. To elaborate further, if you rent a building or office space, one of the most important considerations is whether the cost fits your business model of expenses versus revenue.
When it becomes time to expand your company, do not overextend yourself financially. Follow the original expenses versus revenue model and ensure expenses remain an appropriate percentage of tracked revenue.
Accounting practices
Accounting practices are key to a successful business. Most new businesses may use some type of internal accounting process via QuickBooks and/or utilization of an office manager. Most businesses will also need to contract outside accounting services to track taxes, payroll, and other expenses. Maximizing tax deductions is important for a new business. Hiring the right accounting firm will ensure you properly track and document monthly profit and loss (P&L) and receive ongoing, proper counsel. Advice can include the best methods to save on taxes and track progress accurately. The ability to present accurate, complete data is important if you are audited by the IRS — and when it eventually becomes time to sell your business.
Clean financials are key to surviving buyer due diligence during an acquisition, and they are an essential element of a buyer defining your business attractive and a worthy investment. If cleaning up your financials requires too much work, this will turn many buyers away.
Personnel
One of the most important — if not the most important — steps business owners must take is hiring personnel. Owners need to find the right personnel and maintain strong employee relationships throughout the journey of running the business.
While one would hope that employees will be as devoted to a business and its success as an owner, achieving this is often unrealistic. Owners have much more to gain and lose. But owners will still want to work to develop employee loyalty to the company, which requires keeping employees engaged, excited to come to work every day, and feeling like they are part of something bigger than themselves.
Achieving these goals starts with transparency. Share the company's ongoing progress — good and bad — with employees. That means not just bring up performance when sales are down.
Make employees a bigger part of the business. Profit sharing is one great way to do so. It better ensures transparency, and when revenue grows, employees directly feel the impact of their work and the company's success beyond receiving a regular paycheck. ESOP companies — those with an employee stock ownership plan — have been extremely successful for this very reason.
Profit sharing also promotes tenure, which is extremely important in keeping quality staff for the long term. The better staff understand the business, the better they will be at performing their work and supporting the business and its growth.
Impacts on a Transaction
The decisions you make concerning debt, accounting, and personnel are just as critical to the start of your company as they are to its end when ownership is transferred. Let's jump to the moment where you're looking to sell your business or find a strategic partner. The first step you will want to take is to highlight your business performance. Owners often get focused on the products or services they provide and the value and benefits these deliver to consumers. However, if your business model and structure are not solid, a buyer is not going to want to acquire your company, or you will not receive what you believe to be a fair offer.
It's important to know that most transactions are debt free. Any debt you have, whether it be tied into your real estate, fleet, renovations, expansion projects, or any other area of operations, will be deducted from the purchase price. Some debt is not necessarily bad, but if it's based on risk and not normal working liabilities, you will be at a financial loss.
If your bookkeeping is not clean, you can expect a difficult transaction process and one that may never reach the finish line. Clean bookkeeping is not about the minimum you can get away with when filing your taxes. It's about convincing a buyer that your business is the perfect acquisition opportunity — one worthy of an investment and one that can be scaled appropriately so the strategic company or private equity investors will generate a return on the investment.
The most crucial test of whether you have achieved clean bookkeeping comes when you go under a letter of intent and the buyer starts the quality of earnings (QofE) report, which is performed by a third party. A QofE is always the immediate telltale on how appropriately you have run your business. For any business that keeps good bookkeeping, with invoices that can be matched with revenue, expenditures at what the market would expect, and no large list of add backs and personal expenses rolled into the company, the QofE should align with your true revenue, often described as adjusted 12-month trailing EBITDA. What is often revealed through a QofE is a reduction in EBITDA, with the third party determining problems with your true revenue. This risk is why it's imperative for business owners to have a proven accounting team handling a company's financials throughout the life of the company.
Finally, personnel is often a company's most valuable commodity. It is not only important to have a well-trained and loyal employee base, but you will want a second, third, and sometimes fourth person in command or capable of assuming command when transitioning ownership. If an owner wants to stay on board and roll over equity post-acquisition, then the number two or three person in charge may not be as important to a buyer. However, if an owner is looking to take a reduced role in the company or completely sell the company and step away, the owner is going to need to prove that the next people in the chain of command know as much about the business as the owner does and will remain just as committed to the business following completion of the transaction.
Find the key leaders in your organization. Teach them the business until you are at a place where you know you can go on vacation for weeks at a time and not need to worry about how the daily operations will run because you have full confidence in the people you have appointed to oversee the company in your absence. If you successfully reach this point, it will be easier to demonstrate to buyers that you have worked for many years to prepare for the transition of oversight and management and are confident that it has reached a level where you can step aside.
The Time to Think About the Value of Your Company Is Always
Many people do not think about the value of their business until they think about selling the company. But the value of your business will be predicated by how well you have run your business throughout its many years of operations.
While it may seem counterintuitive, you should think about the value of your company starting the day you launch your business and then never stop. Best practices, like those highlighted earlier, should be top of mind throughout your entire ownership journey. Otherwise, when you finally decide to pursue a transaction, you will likely find yourself spending a lot of time and money trying to clean up existing processes. Even if you are successful in cleaning these processes, a buyer will likely determine that the consistency you are hoping to show is deceiving. This can cost you offers and the value of offers, but it's simple to avoid if you start on the right track from day one (or as close to this as possible).
Speaking of value, how would an owner know the right time to maximize on that value through a transaction? The best time to sell a business or find a strategic partner is when the business is running on all cylinders. However, when business is performing great, this is usually when an owner thinks the least about selling. It's the time of ownership where running the company is perhaps the most fun, in part because of the tremendous profits. Why would an owner want to share this with anyone else (besides employees)?
To answer this question, look at the scenario from a buyer's perspective. A buyer will see the most value in a business when everything is clicking — margins are great, employees are happy, and there is plenty of current and future business. The worst time to try sell your business is when performance starts going downhill or when you are ready to retire and are unable or unwilling to be part of the next chapter of the company after it has been acquired. While the buyer may not want you to remain involved, many buyers like the option of keeping an owner engaged for at least a short period of time to maintain some continuity and help ensure a smoother transition.
By selling your business at the height of its performance, this will essentially guarantee you the best valuation multiple and will help you get through the acquisition process, which can take many months during which there may be some peaks and valleys in the financials. If you are already maximizing revenue when you decide to launch your sale, you should be able to weather any storms.
To help you get to the finish line that you want for your company, hire an experienced M&A firm familiar with your type of business. As your M&A advisor oversees the creation of your company's confidential information memorandum (CIM) and completion of its financial analysis, they will identify any inconsistencies and irregularities that may have occurred in your business. With this information, your advisor will help you determine what you need to do to address these potential red flags or ensure you explain these issues early in the transaction process. Being upfront demonstrates your commitment to full transparency with prospective buyers and will help you avoid having any "skeletons" in your closet discovered during due diligence.
If you have questions about anything in this column, want to learn whether the time is right for your company to consider sale, are interested in finding out more about the transaction process, or are interested in discussing anything else concerning the future of your company, reach out to our team of expert healthcare M&A advisors at VERTESS. We'd love to hear from you!
J. Blake Peart, RRT, CM&AA
I have had the opportunity of an extensive and diverse career in healthcare for over twenty years. In the past ten years, I have served as CEO for multiple hospitals of Fortune 500 companies and CEO for several large Ambulatory Surgery Centers. In addition, my operations and business development knowledge has allowed me to experience the entire M&A process from start to finish focusing primarily on private equity transactions. My history as both a CEO and clinician provides a unique perspective based on years of experience and empathy when working with business owners seeking M&A advice. My expertise is in Ambulatory Surgery Centers, Physician Practices, and independent hospital businesses. I am here to support healthcare business owners who select the M&A direction as one who has walked in their shoes. I know that every transaction is unique and tailored to a seller’s need in getting the best deal and providing a positive experience throughout the entire process.
We can help you with more information on this and related topics. Contact us today!
Many small healthcare business owners struggle when they achieve a certain size or revenue stream. While these owners may see an opportunity to scale, there are challenges: They still have the "mom-and-pop" ideology (i.e., small company mentality) and their organization is not ready or capable of scaling up.
This can be a frustrating experience for an owner. They feel their company can do so much more business, yet they lack the capital, know-how, technology, and/or experience to transform their healthcare organization from a small business (e.g., $20 million in revenue) business to a much larger business (e.g., $100 million in revenue).
Such a situation is risky for a healthcare business owner. If the owner attempts but struggles to grow the revenue and/or EBITDA of the company, this could greatly devalue the business in just a few years. But that doesn't mean owners should abandon their vision for growth. Rather, they may want to explore a sale or recapitalization.
By pursuing one of these options, owners can accomplish a few worthwhile goals. They can get a nice, first "bite of the apple" for their business. They reduce their financial risk by no longer having so much of their finances in one basket. If they stay involved with the company as either a CEO or board member, they can work with a financial or strategic buyer with the experience and resources to scale and accelerate growth. This collaboration can make achieving growth goals possible and do so in much less time than if the owner attempted to achieve such growth on their own. If growth is successful, the owner and existing (or new) management team would be able to get a second — and likely much bigger — bite of the apple and then cash out with the right rollover or stock incentives.
7 Steps to Achieving an Ideal Healthcare Transaction
If proceeding with a sale or recapitalization sounds like a good plan for your business, follow these seven steps to help find the right buyer and partner who can help you take your healthcare company to a much higher level.
1. Set your healthcare transaction goals
Take time to determine the goals for the transaction you're considering. Make goals lofty but achievable. To accomplish the latter, put together a supporting team that will provide the backing and expertise you need to develop an optimal plan for moving forward. This team should be comprised of key internal executive leaders, such as the chief operations officer and chief financial officer, and key external professionals, such as a healthcare M&A advisor (like one from VERTESS), attorney, and accountant.
2. Outline your ideal situation as the owner/leader
How much of your company are you willing to sell to acquire the resources needed to achieve your growth plan? In what capacity do you want to remain with the organization following a transaction? Answering these and related questions concerning what you envision as your company's post-transaction situation and your level of continued involvement is important to ensuring an optimal outcome when your company goes to market.
3. Assess your organization's personnel
Start with your immediate leadership team and cascade down. Ask yourself questions like: Do they have the drive, capability, and experience to take on this journey? Can you envision them as part of a company you hope will be a few or even several times larger in just a few years? If you cannot answer these questions with a confident "yes," you may need to consider changes to your personnel — which brings us to the next step…
4. "Topgrade" your leadership team
Before you proceed with bringing on a financial partner, you will want to consider topgrading your leadership team. Topgrade means two things: It can be a nice way of saying upgrade your team by replacing existing leaders with better qualified leaders, and it can mean improving your current team though training.
Why is topgrading important when contemplating a sale or recapitalization? This is not the time to hope you have the right people or look past shortcomings that make these individuals less effective in their roles. Be prepared to replace leaders or find them new roles that will be better fits in support of the overall growth plan, or at least consider whether training can strengthen your existing leadership team.
If you have a solid leadership team, it's still worth taking the time to identify knowledge gaps and then invest in training and executive coaching. A financial buyer will see much higher value in an organization that comes to the table with an all-star leadership team already in place and ready to put in the work that can help achieve growth goals.
5. Test the transaction waters
Even when owners are not necessarily looking to sell, they should always be putting feelers out to gauge buyer interest in their company. This way, they won't miss key opportunities to bring in a partner, sell, or recapitalize.
If you're serious about testing the waters, this is a great time to speak to a healthcare M&A advisor and receive a valuation on your organization. A good advisor will coach you on whether it is the right time to sell and provide advice on what you should do to better prepare for a successful sale. An advisor can share competitive insights (e.g., previous competitive sales and multiples) and paint a picture of what buyers are currently looking for — and, just as important, not looking for.
If you decide to sell, an advisor can be invaluable in creating that competitive environment that attracts buyers and drives up your sale price. In addition, an advisor will aid in all the transaction negotiations and help ensure the appropriate stock options and rollover equity are included in the deal. Learn more reasons why you should work with a healthcare M&A advisor in this column by fellow VERTESS team member, Bradley Smith.
6. Identify your ideal partner
If you feel it's time to grab that first bite of the apple and your organization is ready to scale with the right plan and the right team, think long and hard about what the ideal buyer looks like. Is it a financial partner? Do you want a strategic buyer who will make your company part of a larger competitor's organization? VERTESS's Alan Hymowitz recently discussed the three predominant healthcare buyer types and the challenges associated with completing transactions with these buyers in this column.
In most scenarios where owners want to stay on with their company and cash out even bigger in a few years, the financial buyer tends to be the clearer path forward. This is not to say a strategic partnership cannot work. In some cases, it's the right decision. However, when you are looking to drive the organization beyond your current capabilities, someone who is going to invest quickly into the company and target its key needs for growth tends to be the right partner.
This is also an area where a healthcare M&A advisor can prove very helpful. Most advisors, especially ones specializing in your line of business, have extensive resources and "rolodexes" of potential buyers and can quickly help you cast the right, wide net to initiate discussions with high-quality, potential buyers.
7. Fish or cut bait
After going through the processes discussed thus far, which should help you gain a better understanding of your company, its leadership, and your potential paths forward for sale or other type of transaction, it's time to make a decision. As the owner, you will want to do what is right for you and the future of your company, including your team and its customers. If you decide to proceed with pursuing a transaction, the work you have put in should help ensure a more successful outcome. If you feel it's best to wait a year so you can better get your house in order, you will be in an even stronger position when the time is right to proceed.
Understanding Your Healthcare Transaction Options
Selling your "baby" can be emotional but exciting as well. Following the steps above and better understanding your healthcare transaction options will put you in a much stronger position regardless of whether and when you sell.
If you have questions about pursuing a sale or recapitalization, reach out to our team of expert healthcare M&A advisors at VERTESS. We'd love to learn about your business and talk about how we can work together to achieve the best path forward for you and your company.
Gene Quigley
For over 20 years I have served as a commercial growth executive in several PE-backed and public healthcare companies such as Schering-Plough, Bayer, CCS Medical, Byram Healthcare, Numotion, and most recently as the Chief Revenue Officer at Home Care Delivered. As an operator, I have dedicated my career to driving value creation through exponential revenue and profit growth, while also building cultures that empower people to thrive in competitive environments. My passion for creating deals has helped many companies’ platform and scale with highly successful Mergers and Acquisitions.
At VERTESS, I am a Managing Director with extensive expertise in HME/DME, Diagnostics, and Medical Devices within the US and international marketplace, where I bring hands on experience and knowledge for the business owners I am privileged to represent.
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