It’s definitely a seller’s market today. With access to leverage and plenty of dry powder, private equity firms and strategic acquirers are willing to pay up for quality deals. This is great news for sellers.
However, that doesn’t mean sellers can just sit back and relax. They still need to work to make the best possible deal upon exit. Middle Market Review recently sat down with Mike Moran, the executive vice president of American HealthCare Capital, to talk about some of the best practices for selling a healthcare business today. American HealthCare Capital is a national healthcare advisory firm.
Moran has been with American HealthCare since 2014 and has closed transactions in segments including LTC Pharmacy, Behavioral Health, IDD, Home Health, Home Care, Medical Staffing, Dentistry, and Long-Term Care (SNFs + ALFs). Right now, Moran says his firm is seeing a lot of Home Health/Care and Pharmacy deals (especially Infusion and Long-Term Care Rx). American HealthCare’s deals trade at anywhere from 4x to 10x adjusted EBITDA depending on the segment. Most of the firm’s clients are professionals looking to retire and others looking to venture off into other areas of interest both of whom are not necessarily privy to market trends. “They want to make the best deal they can, and the most important reasons why we’re hired is to help drive valuation and manage the deal process,” says Moran.
Recently, American HealthCare sold Bring Care Home, a privately owned personal care services provider located in Massachusetts, to Amedisys, a publicly traded independent home health, hospice, and personal care company.
MMR: What are the most important things sellers should consider when readying to sell their businesses?
Moran: It’s very important to have financials generated from a third party CPA. Sellers have to ready themselves in advance by having their books in order. Clearing up any uncertainties with the financials is also extremely important. It is pivotal to provide an accurate account of the business which is supported by key data. Once we have that strong story and information in place, we can craft a thesis that discloses and promotes all aspects of the business.
MMR: How do sellers react to your suggestions?
Moran: They typically listen. Healthcare business valuations and managing the deal process are our areas of expertise and what we’re relied on to perform and steer forward. This includes driving valuation, managing expectations throughout a process, and informing our clients when things are going right or deviating off track. With respect to valuation, our conversations are very candid even before someone becomes a client. This business has been their livelihood and of course they want to maximize value but if a seller isn’t realistic about what their company is worth or what needs to happen to get it ready for sale it won’t serve either party to take on the engagement. Given our deal flow, we have transactional comparatives which give us a good idea of where a company should trade because we have worked with similar companies and we can show the client the experience we have had. We try to educate our clients on what the market is telling us. And most of the time the education process is pivotal for them. We all have to be realistic.
MMR: Other than having clean financials, what are some other key things you are looking for in a potential client?
Moran: In certain healthcare sectors, long-term contracts or contracts with specific insurance providers have immense value. Additionally, we look for a great story! Also something unique about a business which may be the geography or patient population they serve. For example, LTC Pharmacy businesses with strong contracts are particularly coveted throughout a wide range of geographies and provided there is enough scale, we’ll have a multitude of buyers bidding on any given deal.
MMR: Anything else that’s important for sellers to be thinking about?
Moran: It’s all about being able to clearly present a company and what’s great about it. A company may be valuable but we need to make that clear in our presentation or it may not get the price it rightly deserves. Sellers must also have a compelling story and business that can bring value to the organization making the acquisition. They also have to be enthusiastic about the transaction. Buyers are generally more responsive to enthusiastic sellers and those that know their business inside and out.