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!
The world feels unpredictable, and uncertainty seems to be the only constant. One would think this environment would be a significant hindrance to healthcare business owners selling and to buyers stepping in to buy.
And yet, at VERTESS, we are experiencing something different. Our healthcare mergers and acquisitions (M&A) firm is seeing more activity than it has in years, and deals across all sectors keep getting to the finish line. Owners are bringing their companies to market, and strategic and financial buyers are actively pursuing opportunities. Amid tremendous noise, momentum is building.
If that sounds surprising, it is, especially considering that the likes of economic uncertainty, geopolitical instability, a polarized political landscape, and lingering inflationary pressures have left many healthcare business owners frozen in place. The natural assumption is that buyers should be feeling hesitant, and thus the healthcare M&A market must be in a slump.
But that is not what we are experiencing at all.
The Emergence of a New Normal in Healthcare M&A?
After the white-hot activity of 2021 and parts of 2022, the healthcare M&A market hit a wall. The years that followed — 2023 and 2024 — were undeniably tough. We saw deals slow and valuations dip. Many owners who were eager to transact found themselves holding back, trying to wait out the turbulence.
Now, in 2025, things are changing, but not in the way most expected. We are seeing something that almost feels unfamiliar considering what's occurred over the past several years: a sense of balance.
There is a steadiness to the healthcare M&A market right now. The chaos and unpredictability that defined the past five-plus years have not disappeared, but they have started to feel more like the norm. In some ways, this period feels more stable than anything we have seen since before the pandemic. And ironically, that stability is emerging during what many would call one of the most uncertain global and domestic environments in recent memory.
This is where things get interesting. Many healthcare business owners and investors have become numb to the noise. Constant unsettling headlines has made uncertainty feel like the default. While that might seem like a reason to wait to bring a company to market, we see the opposite. Sellers are selling, and buyers are buying.
It is not unlike what we saw during previous uncertain periods. Owners who successfully exited during the peak of the COVID-19 pandemic, or when their industries were experiencing regulatory upheavals in prior years, understood something important: There is no perfect time to transact. Waiting for calm may mean missing out altogether. Instead, these owners focused on what they could control, which included building a strong, efficient business, and that made all the difference.
The same principle holds true today. In fact, for many sellers, this moment is particularly attractive because buyers are increasingly pursuing value. We are seeing serious, disciplined buyers with capital to spend, looking for businesses that demonstrate focus on core areas of expertise, operational maturity, strong leadership, and room to grow.
So, what is the takeaway? You do not need to wait for stability to act. Who knows when stability will return, and what it will even look like? What matters is needing to be ready when your moment comes. That means focusing inward — on your business, your leadership, your long-term goals — rather than outward on market timing. It is the same message I recently shared with home care operators: Uncertainty is the new constant. What matters is how you prepare and respond.
Healthcare M&A Insights From the First Half of 2025
With all of that said, the data shows that some industries are outperforming others when it comes to transaction activity in the first half of the year. According to PitchBook and what we are seeing in our own work, dental, vision, veterinary, and dermatology services are leading the pack, which is not surprising.
Dental and vision care have remained resilient thanks to the ongoing need for these services and operational improvements, like better back-office systems and patient recall tools. Veterinary practices, for example, have seen strong deal interest since COVID-19, when pet ownership and spending surged. Dermatology is experiencing significant growth, with the Wall Street Journalnoting, "Americans' newfound obsession with skin care has medical students flocking to this specialty."
Meanwhile, sectors like med spas have pulled back, in part due to emerging shifts such as the impact of GLP-1 weight loss medications, which have changed consumer behavior. Behavioral health and home care remain active, but buyers are showing a bit more caution and being more selective about their investments.
To summarize, this is a market that's rewarding owners with strong focus and clarity on their business. If your company delivers a core healthcare service, operates efficiently, has strong people backing it, has loyal customers, and shows a clear path for growth, the right buyers are likely out there right now.
A Call to Healthcare Business Owners
If you are a healthcare business owner thinking about a potential sale, whether in the next 12 months or the next five years, now is the time to prepare. Do not wait for perfect conditions; they do not and will never exist. Focus on strengthening what you already do well. Review your operations, don't hesitate to move on from what (and sometimes who) is not working, and double down on what is.
The team of VERTESS healthcare M&A advisors is working with clients across the country to do exactly that: helping owners assess their readiness for a sale, understand their company's value and opportunities to improve it, and position their business for a successful transaction outcome.
Let's talk. Contact VERTESS to begin a confidential conversation about the future of your business and how to take advantage of this market.
Bradley M. Smith, ATP, CM&AA
For over 20 years I have held a number of significant executive positions including founding Lone Star Scooters, which offered medical equipment and franchise opportunities across the country, Lone Star Bio Medical, a diversified DME, pharmacy, health IT and home health care company, and BMS Consulting, where I have provided strategic analysis and M+A intermediary services to executives in the healthcare industry. In addition, I am a regular columnist for HomeCare magazine and HME News, where I focus on healthcare marketplace trends and innovative business strategies for the principals of healthcare companies.
At VERTESS, I am a Managing Director and Partner with considerable expertise in Private Equity Recapitalizations, HME/DME, Home Health Care, Hospice, Medical Devices, Health IT/Digital Health, Lab Services and related healthcare verticals in with US and internationally.
We can help you with more information on this and related topics. Contact us today!
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.
We can help you with more information on this and related topics. Contact us today!
Selling your healthcare business, especially when you're the founder or long-time owner, is one of the most emotionally complex and taxing journeys you'll ever take. The sale is not just a financial transaction. It's the culmination of years, and sometimes even decades, of work. The lengthy process of selling your company brings a whirlwind of feelings, expectations, excitement, and challenges that can — and often will — impact every step of the transaction process.
In our extensive history and experience working with healthcare business owners, there's a recurring psychological pattern we've seen play out time and again. And it's this pattern — this rollercoaster of emotions — that can make or break a deal.
You Believe Your Healthcare Company is the Best
By the time you decide to sell your business, you've likely built something you believe is exceptional. With all the long hours you've put into the company, you know it inside and out. You may know the inner workings of your business better than those of your home. You've spent countless hours working to optimize operations, assembling a talented supporting team, building a strong customer base and referral network, and establishing a brand and reputation that customers and partners have come to trust and value.
When you look at your company, you see an asset that you strongly believe should command top dollar.
That belief is important. It's that confidence which has helped you find success with your business and will drive your desire to find a buyer that truly understands and appreciates the value of what you've worked to build.
But that belief is also the foundation for a deep emotional attachment that can complicate matters as you move through the transaction experience.
The Initial Surge of Seller's Motivation
When you first make the decision to bring your company to market, it's like flipping a switch. After what was likely extensive contemplation, you make the call, and the sales journey begins. Once that happens, the adrenaline will likely kick into overdrive, and you operate with intense focus and energy, which is exciting and one of the reasons many CEOs become addicted to healthcare mergers and acquisitions (M&A). You engage an M&A advisor, gather documents, clean up financials, and undergo a healthcare business valuation. You work with the advisor to assemble your detailed confidential information memorandum (CIM).
The first discussions with potential buyers fill you with excitement and nervousness. You rehearse talking points and then overanalyze your delivery afterward. You try to read between the lines of every question asked of you and your advisor and every follow-up email you receive.
This first surge of motivation that comes with bringing a company to market can make the beginning of the transaction process feel like a sprint.
And that's potentially a big trap.
The Transaction Process Slows, But You're Still Running
After the first few weeks or even few months of research, preparation, outreach to buyers, and calls, the deal process inevitably slows down. Gaps between communications grow. Buyers go dark temporarily as they work through their own — and extensive — diligence processes. A process that once seemed urgent now begins to feel sluggish, which naturally makes you uncomfortable and a little bit skeptical about the future.
At this stage, your motivation begins to shift. You're still committed to the transaction, but you're no longer sprinting. It's more like you're jogging or walking. Some days, there's no movement at all.
Despite all the work that's gone into the transaction, the finish line is still a ways away.
Under LOI: An Emotional Letdown
When your company finally goes under a letter of intent (LOI), it justifiably feels like a huge milestone. But emotionally, this is where a seller's psychology can really start to change.
You feel like you're in the home stretch, but in reality, you're about halfway there.
Due diligence accelerates. The quality of earnings (QoE) evaluation starts. Legal teams get involved or further engaged. The buyer starts asking more prodding questions that can feel personal at times. Some questions may have you believing that the buyer is undervaluing or misunderstanding your business. Conversations get tougher, and the excitement you had for selling your company crashes.
Then comes the fatigue.
Fatigue as a Common Deal Killer
By the time you're in the final stretch, which includes steps like negotiating the purchase agreement, resolving working capital targets, answering diligence questions for what feels like the tenth time, it's only natural to feel exhausted. After all, you've also been trying to run your company while knowing the end of your ownership is on the horizon. The team members you involved in the transaction are tired, and the rest of your staff may sense something big is happening behind the scenes. Your advisors are juggling a hundred things. And emotionally, you're drained, and you may even doubt whether you should have started this process in the first place.
This is the part of the transaction experience that is often unknown, surprising, and disappointing.
What we sometimes see in our seller partners at this stage is a kind of emotional paralysis. Owners slow down. They stop responding to emails as quickly. They delay document requests. They take longer to make decisions. They express skepticism in the buyer.
These actions typically don't stem from a lack of desire to close the deal. More often, it's simply that they've run out of gas.
And that, in the words of Kenny Loggins, is the "danger zone." Healthcare transactions don't usually die because of a single issue. They die from a loss of momentum. Buyers get nervous. Timelines slip. People — including the buyer's team — start second-guessing. Before you know it, the whole deal unravels and it's largely back to square one.
The Healthcare M&A Marathon Mindset
The key to succeeding — and surviving — in the prolonged sale process is understanding that a healthcare business transaction is almost never a sprint. It's more like a marathon. For some deals, it could even feel like an ultramarathon. From the get-go, you need to try to pace yourself — both emotionally and mentally. It's okay to feel everything talked about in this column: pride, anxiety, excitement, doubt, concern, and even grief. But what matters is showing up consistently, focused on the tasks at hand, and ready to do what's needed and asked of you.
The good news is that this is not a journey you should do alone. Build a team you trust and be transparent with them. Ask questions, speak up when you're struggling, and don't be afraid to let others carry the load when you need a mental or physical break — or when your still-operating business requires your complete attention. Above all else, make sure you're working with an experienced healthcare M&A advisor — someone you trust and with whom you feel comfortable picking up the phone and talking through the process, including the emotional side of it.
Throughout it all, stay focused on the end goal. Remind yourself why you started this process in the first place. And most importantly, save some fuel for the finish line — because that's when you'll need it most.
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 rapid growth of the GLP-1 market has brought this natural-hormone-turned-medication into the spotlight, fueling discussion and speculation. As a result, VERTESS has received ongoing inquiries about how GLP-1 drugs impact pharmacy valuations and what pharmacy owners should consider when evaluating their business's future — including the potential for a sale.
To assess the likely effects of GLP-1 on valuations, it's essential to first understand the current state of the market.
GLP-1 Market Update
More than 100 million adult Americans are currently living with obesity, with more than 22 million having severe obesity. Between January 2018 and June 2024, nearly 1.2 million patients were prescribed a GLP-1 receptor agonist, accounting for a total of more than 4.8 million prescriptions during that time. U.S. pharmacy prescription dispensing revenue reached $683 billion in 2024, with GLP-1 agonists contributing to more than 80% of the growth.
It is reported that about 12% of Americans have used GLP-1 drugs, with around 6% currently using GLP-1 medications. Four GLP-1 drugs, including Eli Lilly and Co.'s Mounjaro, Novo Nordisk's Ozempic and Wegovy, and Lilly's Zepbound, are expected to be among the top 10 best-selling drugs in 2026. The success of semaglutide and tirzepatide has fueled the development of over 100 anti-obesity drug candidates, with an anticipated market value exceeding $100 billion by 2030.
Some patients and clinicians are turning to microdosing GLP-1 weight loss drugs for weight maintenance, lower costs, and reduced side effects. Medicare Part D spending on 10 diabetes medications increased to nearly $36 billion in 2023, representing a 364% rise over 2019, according to an Office of Inspector General report. The drugs include Mounjaro, Ozempic, and Trulicity. Spending on Ozempic alone rose 1,567% in 2023 to reach $9.2 billion. There are currently about 7,500 pharmacies engaging in 503A compounding and 88 503B outsourcing facilities.
Here are a few more recent, noteworthy developments concerning GLP-1 drugs:
The U.S. Food and Drug Administration (FDA) removed semaglutide (Ozempic, Wegovy) from the 506E shortage list in February 2025, confirming supply now meets demand. A grace period allows continued compounding — 60 days for 503A pharmacies (until April 22) and 90 days for 503B facilities (until May 22). Novo Nordisk has ramped up production and is shipping all doses.
A Texas judge upheld the FDA's ban on compounding Eli Lilly's Zepbound, requiring smaller pharmacies to halt immediately and larger ones by March 19. Meanwhile, 38 states urged the FDA to crack down on illegal online sales of GLP-1 drug ingredients. Eli Lilly and Novo Nordisk are also pushing to block compounded tirzepatide after the FDA ended its shortage status.
Roche struck a $5.3 billion deal with Zealand Pharma to co-develop petrelintide, testing it alone and with Roche's CT-388. Other emerging drugs include bimagrumab (to prevent muscle loss) and retatrutide (targeting multiple hormone receptors for weight loss).
Financial Impact of GLP-1
The demand for GLP-1 medications has driven substantial revenue growth for pharmacies, med spas, telehealth companies, and online suppliers. However, uncertainty surrounding compounding regulations and insurance coverage has made it difficult to predict GLP-1's long-term profitability. Many buyers are hesitant to factor GLP-1 revenue into pharmacy valuations, with some excluding it entirely and others limiting acquisitions to businesses where GLP-1 accounts for no more than 20% of revenue.
Despite this uncertainty, one thing is clear: GLP-1 drugs are here to stay. Their applications are rapidly expanding beyond weight loss and diabetes management to conditions such as kidney disease, cardiovascular health, sleep apnea, depression, alcoholism, and liver disease. This broader therapeutic scope, coupled with ongoing research and development, reinforces the staying power of GLP-1 treatments.
Valuing GLP-1 Revenue: Lessons From COVID-19 Services
Pharmacy valuations must now adapt to include the impact of GLP-1, much like they did for COVID-19 services. The pandemic created an initial boom in testing, vaccinations, and treatments, driving up revenues and pharmacy valuations. However, as the crisis evolved, so did the demand for these services. While COVID-19 testing and vaccine distribution initially soared, long-term demand has settled into a sustainable, albeit lower, level.
A similar trajectory is likely for GLP-1. While the initial surge in demand and supply shortages created a temporary revenue windfall, long-term integration into mainstream healthcare will stabilize the market. Insurance coverage may expand, new competitors will emerge, and manufacturing capabilities will improve. Pharmacies that relied heavily on COVID-19 testing had to adjust as demand declined, and businesses heavily invested in GLP-1 must prepare for similar shifts.
Structuring Deals With GLP-1 in Mind
Given the uncertainty surrounding the GLP-1 regulatory landscape and payor coverage, structuring earnouts remains the most prudent approach when valuing pharmacies with significant GLP-1 revenue. Earnouts allow buyers to hedge risk while ensuring sellers receive fair compensation if GLP-1 revenue remains strong. This approach mirrors how pharmacy valuations adjusted to post-pandemic realities — recognizing initial spikes while planning for long-term sustainability.
Ultimately, pharmacies that integrate GLP-1 revenue strategically — rather than relying on it as a short-term cash driver — will be best positioned for long-term value. As the GLP-1 market continues to evolve, valuations will need to reflect not just current revenue but also the durability and adaptability of these offerings within the broader healthcare landscape.
Pharmacy owners seeking to understand their market position, including the likely impact of GLP-1, and maximize their company's value should connect with VERTESS. Our experienced healthcare M&A advisors will provide in-depth market insights and strategic guidance that can help you evaluate your options, strengthen your business for future growth and increased valuation, and navigate the complexities of a potential sale. Whether you're planning for an exit now or in the future, VERTESS offers the expertise and support needed to position your pharmacy for long-term success and a successful transaction.
Alan J. Hymowitz, CM&AA
During the past decade I have facilitated numerous, diverse M+A transactions in the pharmacy marketplace across the country, as well as providing strategic consultation to national pharmacies and similar organizations. Prior to becoming an M+A advisor, I was a “hands on” owner and manager in the pharmacy and home infusion healthcare marketplace for over 15 years, and successfully sold my pharmacy to a national company after growing and diversifying our income streams in a very competitive market. My specialties in the pharmacy and home infusion marketplace include long term care, retail pharmacy, specialty pharmacy, and home healthcare, and I have attained the URAC Accreditation and Specialty Pharmacy Consultant designations, in addition to other recognition. My educational background includes a Bachelor of Arts from Rutgers University and a Master of Arts from the John Jay College of Criminal Justice.
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
It’s quite common for healthcare mergers and acquisitions (M&A) transactions to include either an earnout or a seller note, or in some cases both. Earnouts are an addition to the enterprise value where buyers seek protection against a potential future decline in company performance post-closing. For example, the buyer may offer the seller future payouts based on revenue growth or an increase in profitability. Seller notes also allow the buyer to offer a higher price and provide the buyer acquisition financing provided by the seller. For example, the buyer may provide the seller with a note that pays principal and interest for several years post-closing.
You might be wondering why a seller would accept either an earnout or a seller note. The answer is that both allow the buyer to offer a higher price to the seller. Earnouts and seller notes are used by buyers to offer sellers a higher price than an all-cash offer. Additionally, both earnouts and seller notes have tax advantages over the cash paid at closing.
Before we discuss the tax advantages associated with an earnout or seller note, let’s first take a look at capital gains taxes.
Capital Gains Tax Example
In a typical healthcare M&A transaction, the seller receives cash proceeds at closing, net of closing-related costs. In an equity sale, the cash received by the seller at closing is subject to federal capital gains tax and state income taxes. The capital gains tax rates for 2025 are as follows:
Tax Rates
Single Filer
Married, Filing Jointly
0%
$0 to $48,350
$0 to $96,700
15%
$48,352 to $533,400
$96,701 to $600,050
20%
$533,401 or more
$600,051 or more
A married seller, filing jointly, would pay zero federal taxes on the first $96,700 in capital gains, followed by 15% for capital gains between $96,701 and $600,050, then 20% for capital gains in excess of $600,050.
Let’s see what that looks like for $5 million in capital gains:
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$5,000,000
$96,700
0%
$0
$503,349
15%
$75,502
$4,399,951
20%
$879,990
$5,000,000
$955,493
As such, the seller would need to pay $955,493 in federal taxes in the tax year of the sale.
Tax Advantage of Seller Note
If, however, the seller accepted $4 million at closing and a $1 million seller note that called for 12 quarterly principal payments of $83,333.33 plus interest at a rate of 7.0%, the capital gains taxes would look like this:
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$4,000,000
$96,700
0%
$0
$503,349
15%
$75,502
$3,399,951
20%
$679,990
$4,000,000
$755,493
Year 1
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$333,333
$96,700
0%
$0
$236,632
15%
$35,495
$333,332
$35,495
Year 2
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$333,333
$96,700
0%
$0
$236,632
15%
$35,495
$333,332
$35,495
Year 3
Capital Gains
Capital Gains
Capital Gains
Cash Proceeds
Amount to be Taxed
Federal Tax Rates
Federal Taxes
$333,333
$96,700
0%
$0
$236,632
15%
$35,495
$333,332
$35,495
Total
$790,987
Instead of paying $955,493 in federal taxes in the tax year of the sale, the seller would pay $755,493. The seller would then pay $35,495 for each of the following three years as the principal portion of the seller note is paid to the seller, for total capital gains taxes of $790,987 (a savings of $164,506). Additionally, the seller would earn $113,750 in interest income that would be taxed as ordinary income.
Tax Advantage of Earnout
The tax advantage of an earnout looks similar to the seller note example above, but it would not include interest income. The difference between seller note capital gains taxes on the principal payments and the earnout proceeds is that sellers don’t always know in advance the amount of the earnout proceeds. For example, a buyer might offer the seller an earnout based on a percentage of incremental revenues for three years post-closing. Neither the seller nor the buyer will know the amount of annual revenue for each of the post-closing three years until the year ends.
Both the seller note and earnout provide the seller with a tax deferral and lower overall capital gains taxes. However, that assumes federal tax rates remain the same in future years.
Sellers must also take into consideration that there is a risk that the seller may not be able or willing to pay principal and interest on the seller's note or that the future performance of the company does not meet the earnout hurdles.
Understanding the Tax Advantages of Seller Notes and Earnouts
I hope this column has provided you with greater insight into the potential tax advantages of seller notes and earnouts. Knowing the potential tax advantages allows sellers to make more informed decisions regarding accepting a seller note or earnout.
Please note that most states tax capital gains as regular income. A seller note and earnout still provide the seller with a tax deferral, which may offer tax advantages for state income tax purposes depending on the overall taxable income of the seller post-closing. Most sellers expect lower amounts of regular income after they sell their business.
Although this column illustrates the potential tax savings of seller notes and earnouts, readers should always seek the advice of a tax professional like a CPA before making a decision on such matters.
Curious about what you should expect regarding the after-tax proceeds for the sale of your healthcare company? Request a market valuation of your business from VERTESS — regardless of whether you're considering selling soon. Knowing the current market valuation can provide insight you can use to better determine the go-forward plan for your company.
A good roadmap begins by knowing where you are today. A market valuation of your healthcare business is a great start to planning for your future.
David E. Coit, Jr., DBA, CVA, CVGA, CM&AA, CBEC, CAIM
I am a seasoned commercial and corporate finance professional with over 30 years of experience. As part of the VERTESS team, I provide clients with valuation, financial analysis, and consulting support. I have completed over 400 business valuations. Most of the valuation work I do at VERTESS is for healthcare companies such as behavioral healthcare, home healthcare, hospice care, substance use disorder treatment providers, physical therapy, physician practices, durable medical equipment companies, outpatient surgical centers, dental offices, and home sleep testing providers.
I hold certifications as a Certified Valuation Analyst (CVA), issued by the National Association of Certified Valuators and Analysts, Certified Value Growth Advisor (CVGA), issued by Corporate Value Metrics, Certified Merger & Acquisition Advisor (CM&AA), issued by the Alliance of Merger & Acquisition Advisors, and Certified Business Exit Consultant (CBEC), issued by Pinnacle Equity Solutions, and Certified Acquisition Integration Manager (CAIM), issued by Intista. Moreover, the topic of my doctoral dissertation was business valuation.
I earned a Doctorate in Business Administration from Walden University with a specialization in Corporate Finance (4.0 GPA), an MBA from Keller Graduate School of Management, and a BS in Economics from Northern Illinois University. I am a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.
Before joining VERTESS, I spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During my commercial finance career, I analyzed the financial condition of thousands of companies and successfully sold over $2 billion in corporate debt to institutional buyers.
I am a former adjunct professor with 15 years of experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.
By: 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.
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A few months ago, I joined VERTESS as a managing director. I became a member of this great team because I want to help healthcare business owners successfully sell their companies. I also want to ensure our clients do not experience what I did when I sold my business.
The Background
I graduated undergrad with a degree in economics with a premedical emphasis. My expertise was in the analysis of financial statements, largely of publicly traded companies. I worked for the S&P 500 for a little while but found myself lacking passion and was eager to find a career that would give me a more purpose-driven life. I decided to get into senior home health care. I held positions at a few impressive home care agencies and then decided in 2002 to start my own agency in Colorado. I believed I could provide senior home health care services to seniors in the state better than anybody else.
The belief in myself paid off. By 2008, through organic growth and small add-on acquisitions, my agency was generating about $8 million in revenues. We had three branch locations and operated from northern to southern Colorado. We were a top-tier agency providing the full continuum of senior home health care, which was highly attractive to buyers at the time.
While I wasn't interested in selling my agency, my hand was essentially forced due to a divorce. A buyer reached out and expressed significant interest in my agency. Representatives of the buyer, including its owner, flew to Colorado for a meeting at a restaurant airport. The buyer was prepared to generously reward me for the tremendous amount of work I had put into my company and the success we had achieved.
It seemed like we were heading to an outcome that would see me making the best of a situation I didn't want to be in. I handled all the negotiations with the buyer. While I had some previous experience with mergers and acquisitions (M&A), I was by no means an expert. This wasn't a concern at the time as I thought that the buyer had my best interests at heart, and everything with the acquisition of my agency would be done on the up and up. What can I say? I'm an eternal optimist.
Ignorance Is Not Bliss
My naivety came back to bite me. The buyer's attorney eventually took the lead in the negotiation process, and he was supported by an external accountant. Unfortunately, I didn't recognize that what had been a "human transaction" involving a buyer that seemed to prioritize my wellbeing became a deal all — and only — about numbers.
And the numbers weren't going to end up pretty for me. I received a good offer on paper, which combined what seemed like fair figures for cash, an earnout, and stock. I was working with a broker who was referred to me, but I didn't know this broker had represented the buyer. Same with the attorney who was recommended to me. These were clear conflicts of interest, but I did not discover them until after the transaction.
Right before we closed, the buyer said we should make a 338(h)(10) election, which I later found out can greatly harm a seller's finances due to tax implications. The buyer also included some carefully worded language in the contract with stock implications, which I missed, and my broker and attorney failed to discuss with me. The buyer's representatives said all the right things to keep me moving forward toward the sale. They said they wanted me to remain on for a year to help with the transition and would make up for any shortfalls through my salary.
In the end, my rose-colored glasses betrayed me. My stock ended being worthless, and I never received an earnout. Following the transition year, I walked away from my company with nothing except my initial cash.
That was devastating. I put my blood, sweat, and tears into that organization. I gave up time I could have spent with my family growing the organization — in part because I wanted to help more people through our services, but also because I believed the work would pay off financially and enable me to better support my family. While I was able to achieve the former, positively impacting many people's lives, I felt robbed of the latter.
The Lesson Learned
Where did I go wrong with selling my company? I don't want to put too much of the blame on my optimism and the belief that people are generally good. My work in the senior home health care space has shown me this is largely true. But the reality is that when it comes time to sell your company, you cannot afford assumptions. Buyers are looking for good deals, and some will try to take advantage of inexperienced sellers.
I recognize that where I went wrong was that I lacked good representation in the transaction. Engaging with the right M&A advisor, knowledgeable in home health, free of conflicts of interest, and whose responsibility was to have my and my company's best interests at heart, was the key to my receiving fair value for my company. During my sale, I did not have this kind of representation, and I paid the price.
This brings me back to my joining VERTESS. I'm in the last leg of my legacy. I have three grown children and one smaller child. I decided I wanted to finish my career doing purpose-driven work. Despite my success owning and operating home health companies, I was no longer finding joy from C-level operations.
I met with VERTESS' leadership and instantly knew that this was the right firm and right work for me. I had my doubts about a career in M&A because I had largely soured on these professionals due to my transaction experience, but the VERTESS team shows that not every M&A firm is only interested in getting deals to the finish line and earning commissions. The team is largely comprised of past owners and operators of healthcare business. We understand what it takes to grow a business, including making huge sacrifices, and what's required to get to a place where buyers are willing to pay a generous and fair amount for a company. We know the importance of finding the right buyer — one capable of making a good financial offer and who will help the business they are acquiring continue to grow and thrive.
We also understand that when it comes to transactions, the devil is in the details. A little mistake or oversight can jeopardize a deal or lead to an unfair outcome for a seller. We support one another at VERTESS and collaborate closely with the other members of a transaction team, like an attorney and accountant, to ensure no important detail is missed.
Most importantly, we are motivated to help our clients succeed. Our team has been in their shoes, which is why we follow our form of the golden rule: We do unto our sellers as we would want someone to do unto us. As you might imagine, this is very personal for me given what I experienced — and what I hope no one else experiences.
My story shows that choosing the right representation may be the most important step you take to prepare for selling your company. When that time comes, I hope you will reach out to VERTESS. We'd love to learn about you and your company's story and help provide the happy ending for your business that you deserve.
Christine Bartel, MBA/MHA, CSA
Before joining VERTESS, I served as a senior healthcare executive for 26 years. My expertise includes CEO and COO functions, which produce dramatic improvements in financial performance through acquisitions, joint ventures and, service line development. I am experienced in the full continuum of care, with a deep understanding of how new federal and state policies impact the bottom line. After working as a statistician at Standard & Poor’s Compustat and a financial analyst at Dun & Bradstreet Corp., I began a career in health care and, in 2002, started a home care services company in Colorado. Serving as the CEO, I supervised a staff of approximately 350 caregivers, established two branch locations in Colorado Springs and Fort Collins, and ultimately sold the company to a private equity firm in 2008. Since then, I launched an independent consulting practice that acquires underperforming health care entities, delivers strategic guidance and an array of management services to diverse healthcare organizations, facilitates with interim/long-term senior leadership operational turnarounds, joint ventures, facility expansion, service line development, and mergers and acquisitions. I also coach health system executives, physician groups, assisted living facilities, skilled nursing facilities, insurance companies, and post-acute organizations.
I earned my Bachelor’s Degree in Economics from the University of Colorado Boulder and an MBA from George Washington University. In 2012, I received my Certification as a Senior Advisor (CSA). Lifetime achievements include raising four beautiful children, hosting “Aging Independently with Christine Bartel” on CBS Noon News, and authoring “Redemption, The Christine Bartel Story.” I received the women-related Corporate Social Responsibility/Bronze Stevie Award in 2018, was featured on the Inc. 5000 list of the fastest-growing private companies in America (ranking 1908 out of 5000) in 2018, and was honored as the Female Executive of the Year/Gold Stevie Award Winner in 2017.
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When the time comes for you to sell your durable medical equipment (DME) company, there will be a lot of work required to go from putting the company on the market to completing a successful transaction. If you want that sales process to go smoothly, there's a good deal of work you'll want to complete before you start the sales process.
Here are seven of the key steps you should take that will better ensure your DME company sells for a fair price and to the right buyer.
1. Get your DME house in order
What does it mean to get one's house in order concerning the sale of a company? It boils down to your business functions. Owners of a business typically do not undertake deep dives into their financials and performance, but that's what a prospective buyer will do right off the bat. Owners need to put themselves into a buyer's shoes and assess the balance statement, key financial metrics, employee and payor contracts, assets, processes, the legal structure of the business, and other areas to see what stands out — and not in a positive way. What might be a potential red flag to a buyer? What could be a major hassle for a new owner or lead to difficult questions during the due diligence process of a sale? For example, are you over-indexed on operating expenses? Will buyers ask why your opex exceeds 40%?
Once you have completed this assessment, work to fix the issues you identify — especially the low-hanging fruit — to the best of your ability before you bring your DME business to market. Doing so will allow you to hedge off some of those questions and ultimately make your company more presentable.
2. Tell your growth story
When a buyer is considering your company, they're going to want to see that you're profitable. But more importantly, they're going to want to understand how you can become more profitable — i.e., What is the runway for you to grow? As you are preparing your company for a sale, develop the story that will explain how you are going to grow over the next 3-5 years. What's going to differentiate you in the industry? How are you going to stay ahead of trends?
This is all very important. I've been part of the leadership team for several companies that sold, and for each of them I was the sales or growth leader. When we developed our confidential information memorandum (CIM)*, most of the time was focused on where we expected we could grow. What was our secret sauce? How could we expand sales? Expand payer contracts? How were we going to buy smarter to reduce expenses? A strong growth story is likely to increase your DME company's multiple.
*Note: If the concept of a CIM is new to you, I recommend reading this recent column by my colleague David Purinton. It defines the concept of a CIM, shares best practices, and identifies what to include in your CIM.
3. Put together the right DME transaction team
For most durable medical equipment company owners, the sale of their company will be a once-in-a-lifetime experience. The sale is the conclusion of years of hard work and sometimes even some blood and tears. It's not surprising that some DME owners are on the fence about whether to bring in outside help for the transaction because of the costs involved in engaging an advisor and other support, which is money that comes out of the seller's pocket.
But just as most owners had help setting up their company, they will be best served getting help selling their company. The right assistance can not only translate into a higher sales price but also avoid costly missteps, mistakes, and a prolonged transaction. Experience shows that an outside advisor, whether it's someone from VERTESS or another healthcare mergers and acquisitions (M&A) firm, helps owners better identify and address challenges, take advantage of opportunities, emphasize what makes the company special, and create the competition for the sale that drives up the multiple.
A traditional operator will likely not know how to put a CIM out to market or get it into the right buyers' hands. Owners may have a few people in their index they think could have interest in acquiring the company, but taking this approach means you're missing out on the opportunity to cast the wider net that creates the competition you want and brings in different types of buyers.
In addition to brining on a healthcare M&A advisor, and preferably one with DME experience, other members of the transaction team should include an accountant and legal advisor with healthcare transaction expertise. The right team will make the sales process go more smoothly and help ensure the sale reflects the years of work and investments that have gone into the company.
4. Fully understand your durable medical equipment company's vulnerabilities
This ties back to getting your house in order. You must understand where your company is vulnerable. Will any of your contracts soon be susceptible to compression? How are you going to stay ahead of that development? Is competition coming out with a new product that may put you in a less competitive position moving forward? Is there anything under the hood of the company that could be considered a weakness?
Once you identify your vulnerabilities, you'll want to do one of two things. If you can fix a vulnerability, you should. If it's not a simple fix, at least develop a strategy for how you will overcome it.
5. Understand your value from the buyers' perspective
Nearly every owner I've worked with contemplating a sale has a price they firmly believe they should receive for their company. This figure may be achievable, but there are a lot of factors that will influence the final sale price — and the potential for the price to end up higher than what a seller believes is fair and possible.
To gain a better understanding of how a sale may play out, DME owners will want to start thinking about their likely buyers, what these buyers are looking to get out of the business, and how these buyers may deploy the business following the transaction. Is one potential buyer a private equity platform looking to add more companies? Will the seller's company be an additive to other companies a firm currently owns? Might the acquisition be a strategic buy?
In these and other scenarios, owners should ask themselves: What's the value your company brings to potential buyers? What are the buyer's immediate and longer-term needs? Understanding what the buyer is looking for is helpful in determining how to best present the company in your CIM. You want to position your company to how it will meet those needs so you can secure a price that matches or even exceeds what you may have calculated before the sales process begins.
Putting yourself in buyers' shoes also helps establish more realistic sale expectations. In some instances, this will require an owner to come to terms with the fact that their company is not worth what they hoped or expected. Determining what a buyer will and will not value and what your company is likely to sell for ties back to assembling your transaction support team and leveraging their guidance and expertise.
6. Keep your management team focused on business, not the transaction
A DME company's management team will be involved in the sale. They will be a part of the CIM development process and helping with due diligence. But one of the worst decisions an owner can make is to have their management team focus so much on the deal that they take their eye off the business. You want to make sure your executive team and the management team underneath them are involved in the transaction as much as necessary, but their day-to-day focus should be on delivering your services, growing the business, and executing your strategic plan. The last thing you want is your company's performance to fall off as you are working to complete a sale.
7. Consider your post-deal involvement
A final essential step to take before bringing your durable medical equipment company to market is to consider the role and level of involvement you're looking for in your company following its transaction. That's going to greatly influence the type of buyer you want to target. Do you want to fully exit? If so, understand that this may turn away some buyers who are not interested in investing in finding and onboarding a new CEO or any other executive position you hold.
If you want to stay on with the business, make sure the buyer understands the position you are looking for following the sale. Is it a board position? Do you still want to be in an operator position? Do you want to give up full control? Half control? These are questions to firmly answer before initiating the transaction process.
Selling Your DME Company: Do the Work, Reap the Rewards
When you conclude that it's time to sell your DME company, you may be eager to start the sales process and find out what your business is worth. But rushing into the process is going to do more harm than good. By allocating the time and resources to effectively complete the steps described above and others recommended by your transaction team, including your DME M&A advisor, you will strengthen the performance and appearance of business, become more attractive to buyers, and should end up securing a sales price that rewards you for building a successful durable medical equipment 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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