Looking to Sell a Healthcare Company - Consider an M&A Advisor

Perhaps the most important business transactionCommunications.
you will ever pursue is the sale of your business.7. Balance of Experience. Most corporate buyers
Many healthcare business owners attempt to do ithave acquired multiple businesses while sellers
themselves and when asked if they got a goodusually have only one sale. In one situation we
deal, many respond with "I think so," or "I got myrepresented a first-time seller being pursued by a
asking price," or "I really don't know," or "It was abuyer with 26 previous acquisitions. Buyers want
disaster." Often times these very capablethe lowest price and the most favorable terms.
business people approach the sale of theirThe inexperienced seller will be negotiating in the
business with less formality than in the sale of adark. To every term and condition in the buyer's
home. The purpose of this article is to answer thefavor the buyer will respond with, "that is
questions - Why would I use an M&A Advisor andstandard 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 owninvestment banker can act as the seller's
business, that process alone reveals to the worldadvocate 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 nervousstructure.
and competitors get predatory. Engaging an8. Maximize the Value of Seller's Outside
advisor protects the identity of the company heProfessionals. The seller can save significantly on
represents for sale with a process designed toprofessional hourly fees by allowing his merger
contact only owner approved buyers with a blindand acquisition professional to manage several
profile - a document describing the companyimportant functions leading up to contract. His
without revealing its identity. In order for thecompensation is usually comprised of a reasonable
buyer to gain access to any sensitive informationmonthly fee plus a success fee that is a
he must sign a confidentiality agreement. Thatpercentage of the transaction value.
generally eliminates the tire kickers and detersThe M&A Firm and seller negotiate with the buyer
behaviors detrimental to the seller's businessthe business terms of the transaction (sale price,
2. Business Continuity. Selling a business is a fulldown payment, seller financing, etc.) prior to
time job. The healthcare business owner isturning the purchase agreement over to outside
already performing multiple functions instrumentalcounsel for legal review. In the absence of the
to the success of his business. By taking on theAdvisor, that sometimes-exhaustive negotiation
load of selling his business, many of thoseprocess 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 thesignificant hourly fees.
business. The owner must maintain focus on9. Maintain Buyer - Seller Relationship. The sale of
running his business at its full potential while it isa 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 lowerbuffer 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. Intermediariesrelationship post closing. Many times the seller will
subscribe to databases of the various healthcarebecome an integral part of the management
business categories that enable them to screenteam of the buyer's company after the sale.
for buyers that are in a certain SIC Code andOften buyers want sellers to have a portion of
have revenues that would support the potentialtheir transaction value contingent on the
acquisition.successful performance of the company post
In addition they maintain custom databases of theclosing. Buyer and seller need to be on the same
various healthcare categories refined even furtherteam after closing.
to hone in on only the best potential buyers forA model that is becoming quite popular in the
your business. A good M&A Advisor also hashealthcare industry is for the big players to
access to private equity groups databases thatidentify good technologies in smaller companies
outline their buying criteria.and to forge partnerships or strategic alliances
5. Marketing. A Merger and Acquisition Firm canwith them. The larger company will have the
help present the business in its best light tosmaller company spend a great deal of their
maximize selling price. They understand how toresources and attention in educating the bigger
recast financials to recognize the EBITDA potentialplayer on their product and market.
post acquisition. Higher EBITDA = higher sellingThe smaller partner will often work very hard to
price. He understands the key value drivers forintegrate their offering into the broad product set
buyers in a particular healthcare segment and canof the bigger partner. Finally, the smaller company
help the owner identify changes that translate intowill 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 healthcareeffectively removed most of the integration risk
business is far more difficult to ascertain than theon the smaller company's nickel, they then make
value of a house or even the value of a "bricksan unsolicited offer to buy. The smaller company
and mortar" type business. Every business isis often less profitable during this "try it before
unique and has hundreds of variables that effectyou buy it period." The bigger player then
value. Investment Bankers have access topredicates their offer on the latest period
business transaction databases, but those shouldfinancials.
be used as guidelines or reference points. TheA good investment banking firm can help the
best way for a business owner to truly feelsmaller company navigate and recover from this
comfortable that he got the best deal is to havesituation. Our experiences with businesses that
several financially viable parties bidding for hisengaged our firm as a result of an unsolicited
business. A healthcare industry transactionoffer from a buyer have been quite instructive.
database may indicate the value of your businessThe eventual selling price averaged over 20%
based on certain valuation multiples, but thehigher 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 aTo conclude, seller's intermediary helps reduce the
value to a particular buyer on a key customerrisk of business erosion with improved
relationship or a proprietary technology. Mostconfidentiality while allowing the owner to focus on
business owners that act as their own sellingrunning the business. The M&A Advisor led sale
agent get only one buyer involved - eitherhelps maximize sales proceeds by involving a large
another business that approaches him with anuniverse 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 theimprove the likelihood that the sale closes by
additional billion plus dollars of value created forbuffering buyer - seller negotiations and by
MCI shareholders because of the competitivebalancing the experience scales.
bidding between Verison and Quest