| Perhaps the most important business transaction | | | | Communications. |
| you will ever pursue is the sale of your business. | | | | 7. Balance of Experience. Most corporate buyers |
| Many healthcare business owners attempt to do it | | | | have acquired multiple businesses while sellers |
| themselves and when asked if they got a good | | | | usually have only one sale. In one situation we |
| deal, many respond with "I think so," or "I got my | | | | represented a first-time seller being pursued by a |
| asking price," or "I really don't know," or "It was a | | | | buyer with 26 previous acquisitions. Buyers want |
| disaster." Often times these very capable | | | | the lowest price and the most favorable terms. |
| business people approach the sale of their | | | | The inexperienced seller will be negotiating in the |
| business with less formality than in the sale of a | | | | dark. To every term and condition in the buyer's |
| home. The purpose of this article is to answer the | | | | favor the buyer will respond with, "that is |
| questions - Why would I use an M&A Advisor and | | | | standard practice" or "that is the market" or "this |
| what am I getting for the fees I will pay? | | | | is how we did it in ten other deals." An |
| 1. Confidentiality. If an owner tries to sell his own | | | | investment banker can act as the seller's |
| business, that process alone reveals to the world | | | | advocate with a similar experience base to help |
| that his business is for sale. Employees, | | | | preserve the seller's transaction value and |
| customers, suppliers, and bankers all get nervous | | | | structure. |
| and competitors get predatory. Engaging an | | | | 8. Maximize the Value of Seller's Outside |
| advisor protects the identity of the company he | | | | Professionals. The seller can save significantly on |
| represents for sale with a process designed to | | | | professional hourly fees by allowing his merger |
| contact only owner approved buyers with a blind | | | | and acquisition professional to manage several |
| profile - a document describing the company | | | | important functions leading up to contract. His |
| without revealing its identity. In order for the | | | | compensation is usually comprised of a reasonable |
| buyer to gain access to any sensitive information | | | | monthly fee plus a success fee that is a |
| he must sign a confidentiality agreement. That | | | | percentage of the transaction value. |
| generally eliminates the tire kickers and deters | | | | The M&A Firm and seller negotiate with the buyer |
| behaviors detrimental to the seller's business | | | | the business terms of the transaction (sale price, |
| 2. Business Continuity. Selling a business is a full | | | | down payment, seller financing, etc.) prior to |
| time job. The healthcare business owner is | | | | turning the purchase agreement over to outside |
| already performing multiple functions instrumental | | | | counsel for legal review. In the absence of the |
| to the success of his business. By taking on the | | | | Advisor, that sometimes-exhaustive negotiation |
| load of selling his business, many of those | | | | process would default to the outside attorney. It |
| essential functions will get less attention, | | | | is not his area of expertise and could result in |
| sometimes causing irreparable damage to the | | | | significant hourly fees. |
| business. The owner must maintain focus on | | | | 9. Maintain Buyer - Seller Relationship. The sale of |
| running his business at its full potential while it is | | | | a business is an emotional process and can |
| being sold. | | | | become contentious. The intermediary acts as a |
| 3. Time to Close. The faster the sale, the lower | | | | buffer between the buyer and seller. This not only |
| the risk of business erosion, customer defection, | | | | improves the likelihood of the transaction closing, |
| employee problems and predatory competition. | | | | but helps preserve a healthy buyer - seller |
| 4. Large Universe of Buyers. Intermediaries | | | | relationship post closing. Many times the seller will |
| subscribe to databases of the various healthcare | | | | become an integral part of the management |
| business categories that enable them to screen | | | | team of the buyer's company after the sale. |
| for buyers that are in a certain SIC Code and | | | | Often buyers want sellers to have a portion of |
| have revenues that would support the potential | | | | their transaction value contingent on the |
| acquisition. | | | | successful performance of the company post |
| In addition they maintain custom databases of the | | | | closing. Buyer and seller need to be on the same |
| various healthcare categories refined even further | | | | team after closing. |
| to hone in on only the best potential buyers for | | | | A model that is becoming quite popular in the |
| your business. A good M&A Advisor also has | | | | healthcare industry is for the big players to |
| access to private equity groups databases that | | | | identify good technologies in smaller companies |
| outline their buying criteria. | | | | and to forge partnerships or strategic alliances |
| 5. Marketing. A Merger and Acquisition Firm can | | | | with them. The larger company will have the |
| help present the business in its best light to | | | | smaller company spend a great deal of their |
| maximize selling price. They understand how to | | | | resources and attention in educating the bigger |
| recast financials to recognize the EBITDA potential | | | | player on their product and market. |
| post acquisition. Higher EBITDA = higher selling | | | | The smaller partner will often work very hard to |
| price. He understands the key value drivers for | | | | integrate their offering into the broad product set |
| buyers in a particular healthcare segment and can | | | | of the bigger partner. Finally, the smaller company |
| help the owner identify changes that translate into | | | | will put all their eggs into this one basket of |
| enhanced selling price. | | | | opportunity. After the larger company has |
| 6. Valuation Knowledge. The value of a healthcare | | | | effectively removed most of the integration risk |
| business is far more difficult to ascertain than the | | | | on the smaller company's nickel, they then make |
| value of a house or even the value of a "bricks | | | | an unsolicited offer to buy. The smaller company |
| and mortar" type business. Every business is | | | | is often less profitable during this "try it before |
| unique and has hundreds of variables that effect | | | | you buy it period." The bigger player then |
| value. Investment Bankers have access to | | | | predicates their offer on the latest period |
| business transaction databases, but those should | | | | financials. |
| be used as guidelines or reference points. The | | | | A good investment banking firm can help the |
| best way for a business owner to truly feel | | | | smaller company navigate and recover from this |
| comfortable that he got the best deal is to have | | | | situation. Our experiences with businesses that |
| several financially viable parties bidding for his | | | | engaged our firm as a result of an unsolicited |
| business. A healthcare industry transaction | | | | offer from a buyer have been quite instructive. |
| database may indicate the value of your business | | | | The eventual selling price averaged over 20% |
| based on certain valuation multiples, but the | | | | higher than the first offer. In no case was the |
| market provides the real answer. | | | | business sold at the initial price. |
| An industry database, for example, can not put a | | | | To conclude, seller's intermediary helps reduce the |
| value to a particular buyer on a key customer | | | | risk of business erosion with improved |
| relationship or a proprietary technology. Most | | | | confidentiality while allowing the owner to focus on |
| business owners that act as their own selling | | | | running the business. The M&A Advisor led sale |
| agent get only one buyer involved - either | | | | helps maximize sales proceeds by involving a large |
| another business that approaches him with an | | | | universe of buyers in a competitive bidding |
| unsolicited offer or a referral from his banker, | | | | process. Finally, the investment banker can |
| accountant, or outside attorney. Just look at the | | | | improve the likelihood that the sale closes by |
| additional billion plus dollars of value created for | | | | buffering buyer - seller negotiations and by |
| MCI shareholders because of the competitive | | | | balancing the experience scales. |
| bidding between Verison and Quest | | | | |