One of the payoffs of being an entrepreneur or business owner is that you own your own work. This of course means that you have to put in blood, sweat and tears when starting your business, but it also means that you own your company which you can then sell and walk away from to make for a luxurious retirement. Most healthcare business owners opt to sell their company to someone they believe would continue to operate it, grow it and care for the employees and brand.
Many entrepreneurs find it to be difficult to choose the best person or investment group to carry on their legacy, know the healthcare industry and who will treat their clients, vendors and employees properly while also being able to fairly compensate the entrepreneur(s) to walk away.
In this article we’ll address how you can approach the process of selling your healthcare business and the steps you need to take that’ll help you decide the best person or organization to sell your healthcare business to.
If you’re looking to sell your healthcare business at this moment in time, you’re in luck. The healthcare industry is the most in demand market for private equity investors to purchase companies in. Additionally, it is one of the fastest growing industries with the demand for healthcare expected to grow by 16% over the next decade. With all of this capital being raised to invest in and acquire healthcare assets, valuation multiples have never been higher.
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Annual Growth
Average growth for the past 3 years
Client Base
Do you have recurring customers that makeup the majority of your business?
Over 20% of my business is long-term contracts
Over 75% of my business is long-term client contracts
Management Team
Do you have a tenured management team in place
The new owner will have to hire and train a management team
A portion of my business is run my managers.
My business is entirely run by my managers.
Healthcare Vertical
Which of the below most closely represents your business
Describe your business product/service
How to get started with selling a healthcare business?
When contemplating a sale of their business, healthcare company owners will either deal directly with an investment firm (private equity group) like Minerva, or they could enlist the help of a qualified investment bank (for companies over $20m in revenue) or business broker (for those with less than $20m in revenue). We’ll go over these options in more detail below.
Before dealing directly with a private equity firm or hiring an investment bank, you’ll first want to look at their case studies and determine if they have a significant healthcare sector experience. Because healthcare is such a specialized industry, this is one of the most important steps in selling your business. If you don’t yet have an investment banking or brokerage relationship, your CPA or outsourced CFO may be able to make a referral for you as they are often part of the M&A process.
Options For Selling Your Healthcare Business
Selling Your Company Directly to an Investor or Private Equity Group
If you have taken venture capital financing or have any investors on your cap table, it may be a smoother exit to sell your equity directly to them than to enlist the help of an investment banker and run a full sell-side process to dispose of your company. Alternatively, some private equity groups such as Minerva will work directly with the business owner or entrepreneur to come up with a fair purchase price and structure to acquire the company.
Selling Your Healthcare Business with an Investment Bank or Broker
There are many sub-industries when we’re talking about the healthcare industry. If you are planning to hire a representative such as an M&A firm (investment bank) or business broker to represent you in the process, make sure you are dealing with someone who has worked not just with healthcare companies, but with your particular business model such as home health, durable medical device, pharma, life science, biotechnology, etc.
Selling Your Healthcare Business to an Investment Company (Private Equity)
At Minerva, we invest in well-run healthcare companies that we believe have strong management teams in place, a great reputation in the market and that we believe we can build over the course of 3-5 years. Often-times, these are durable medical device companies, B2B service companies serving the healthcare industry or home healthcare service companies.
Steps to Selling Your Healthcare Company
There are a couple of steps that you need to take before selling your healthcare business. However, despite the fact that it might seem like a scary change, the steps are fairly simple and if you follow all of them correctly the selling process should not be drawn out and it should finish really fast.
Getting Management in Place
The first thing that you as a business owner need to do before selling your healthcare business is set a value of the business. This is typically done by taking all of the profit of the business and applying the industry standard multiple to it. The multiple you use depends greatly on the size of the business (larger companies get higher multiples), the niche of healthcare your business services, how many employees you have (the more the better), how much of the revenue is recurring and how wide the net profit margins are. Once you’ve set the value of your business, you’ll be prepared to make a decision on if now is the time to go to market or if you need to keep working on the business for a period of time.
Gathering Your Financial Statements and other pertinent business documents
The next step in the sales process is the organization of the documents and all of the financial parts of your business. After all, the potential buyers won’t want to make an offer before taking a look at your documentation and the financial statements. Your business should own a monthly, quarterly, or yearly financial statements which would indicate the money coming in and going out of your business as well as the assets the business owns and if you have any debt on the balance sheet
The best thing for selling your business is to have the simplest financial statements that will enable the buyer to quickly glance over them and understand the state of your business.
Sharing Client Information
Sharing client or patient information can be a sensitive topic that is unique to the process of selling a healthcare business. However, you’ll need to share some of the information in order to entice the potential buyer and for them to be able to assess the true value of the business. The key in this step is knowing just how much you can tell your potential buyer without hurting the rights of your clients. You don’t want to reveal personal information and information on your clients’ disease history. However, in most states it is totally fine to share the number of your clients and how much of those are insured and self-pay clients of course if your business accepts insurance. With this said, we always recommend you seek proper legal council before disclosing any information that may be a HIPAA violation.
Most Common Deal Structures For Selling Your Healthcare Business
There are lots of deal structures that two parties agree upon when transacting a business. And most of these deals are oftentimes affected by some of the same factors like commercial, legal, regulatory and tax factors. The most common type of a transaction is the outright acquisition of the whole business, and this is the structure we’ll start with.
An Asset Purchase
Mergers and Acquisition transactions are often time done by a whole business acquisition. In an M&A transaction like this the buyer fully buys the business and its assets. The most common examples for this structure in the healthcare scene is when hospitals acquire physician practices or when a big pharmaceutical company acquires a biotech company to further improve its production.
A Stock Purchase
When a stock purchase structure is agreed upon by the two parties the buyer buys off the stocks from the company’s stockholders. This transaction allows the buyer to acquire the business as their subsidiary. In this type of a structure the assets and liabilities of the business stay with the business and are transferred to the buyer.