FAQ on Selling a Healthcare Business
• Why would a healthcare business owner want to use a mergers and acquisitions advisor like Fleetridge?
In general, we think any healthcare business owner would be smart to use an advisor to sell his or her company. It can be a very complicated and lengthy process, and getting the deal closed usually depends on navigating the process effectively. Also, any business owner would want to realize the most value for the company that he or she worked so hard to build, and an advisor who is dedicated to the sale will help to do this.
Healthcare business owners are often approached by potential buyers, even if they do not yet intend to sell. So, some owners think that finding a good and able buyer is easy and an advisor is not needed. These are the owners who learn the hard way that simply finding interested buyers is just the beginning of a long process. Lastly, healthcare business owners still need to run their businesses while the sale is proceeding, and an advisor does much of the required work which allows the owners to continue focusing on their business.
• Would a general business broker or investment banker provide the same services as Fleetridge?
An advisor who is a generalist would probably provide a similar set of services, but would not have the experience in healthcare service sectors to help its clients the way Fleetridge could. Understanding how a home health agency, hospice agency, physician practice, clinical or pathology laboratory, or medical device company operates is invaluable when selling these companies. For example, many of these business generate substantial revenues from third party payers, which includes Federal and state governments. Fleetridge undoubtedly understands these payer systems better than a general business broker or banker, and this ability makes our acquisitions proceed much more effectively. The same can be said for how healthcare companies do their marketing, provide care, manage their clinical providers and administrative staff members, and handle legal challenges. Fleetridge understands all of these business dynamics, because it is all we do. We subscribe to industry publications, attend conferences, and have daily discussions with industry leaders to keep up to date.
• Dr. Hicks, you have also worked in the healthcare field as a clinician – does this help when representing healthcare business owners?
Having experience as a clinical care provider is extremely helpful in advising our clients. I feel that I have an innate appreciation for the challenges faced not only by healthcare business owners, but also by the patients and providers with whom they interact. When marketing a healthcare business, I try to draw on my time as a clinician when discussing all features of the business. And, there are a few sectors we serve in which my clinical experience is most directly relevant. For example, when representing the owners of clinical and pathology laboratories, I am frequently reminded of all the lab tests I ordered and interpreted as a clinician. Also, with medical device and technology clients, I think that I can benefit from my experience with the many devices I owned and used as a clinician.
I should note that I am not the only member of the Fleetridge team with experience in clinical medicine. Beth DaSilva was the office manager of an ophthalmologist’s clinic and the Administrator of a home health agency for several years before starting Fleetridge.
• In what sectors of the healthcare field does Fleetridge work?
Fleetridge advises clients in the home health, hospice, physician practice, laboratory, medical device, and many more sectors of healthcare. There is much overlap in these sectors, and understanding each individual sector helps to understand the others. Few healthcare mergers and acquisitions advisors offer such a breadth of expertise.
• Do you ever represent the buyer and seller on the same deal?
No, not in any official capacity. We feel that this would generate a conflict of interest. We represent almost entirely sellers of healthcare businesses. When appropriate, we offer very general and “unofficial” advice to buyers, but we always encourage buyers to have their own official advisors during a transaction.
• When you are representing a seller, do you always follow his or her wishes?
Not always. Working with sellers involves interesting and varied relationships. Most sellers are confident and opinionated, which is good since these qualities help them to create and grow strong healthcare companies. Some sellers also have strong ideas about what should happen during a transaction, and what their companies are worth. However, these ideas are not always reasonable, in our opinion. In these cases, we work with each client so we can both understand a more realistic picture and facilitate a smooth transaction. We realize, though, that in the end, we work for our clients, and not the other way around. We never try to force a client to take a course of action that the client does not choose.
• Do you list an asking price for the companies you sell?
We do not list asking prices. This is sometimes hard for our clients, and some buyers, to understand. We feel that there are just too many variables in any transaction, and each company is a too complex of an organization to reduce the operations to a simple number. It is not like selling a house (and even the listing price of a house is negotiable). A company is made up of people, processes, ideas, goodwill, and so on, and each buyer will appreciate and value these features differently. So, we ask buyers to bring their own offers to a seller, and the seller can negotiate from there. Of course, we help sellers determine what they should expect, but in the end, a healthcare company in a transaction is worth what the market will pay.
• What challenges do healthcare company owners face in a sale that other business owners don’t need to consider?
We think the biggest concern that most healthcare service providers feel, in arranging a sale of their businesses, is providing for the continuity of quality care for their patients. Healthcare business owners all share a passion for caring and healing. So, patients are much more than customers – they depend on services of the business for their health and wellbeing. Healthcare business owners always feel that as they sell their companies, they must also ensure that these services continue uninterrupted after the sale.
Other challenges that are specific to healthcare service providers include payer sources and government influence. Because revenues come mostly from third party payers, a healthcare business’ revenue stream cannot always be controlled by the owner, and this can make buyers wary. Also, the requirements of licensure can be a blessing or a curse. If an agency has desirable licenses, it will of course be more attractive to buyers. Licensure also entails government oversight and possible disciplinary action, so sellers of healthcare businesses need to be aware of how these issues will affect the sale.
• What advice would you offer a business owner who is considering selling his or her company or agency?
The first piece of advice that comes to mind is to make sure the reasons for selling are considered thoroughly. At first, an owner may be enticed by the future proceeds of a sale, but may not really be prepared for the arduous process of selling the company. Also, some owners don’t consider what they will do after the sale, when they no longer have a company to which they can dedicate their time and passion. Buyers always ask why an owner wants to sell, and if the reason is not compelling, buyers often lose interest.
Owners must also maintain excellent financial and operating records prior to selling. The process of due diligence, conducted by the buyer after an offer is accepted, is tedious and time consuming, and excellent records make this process much easier for both the seller and the buyer. For healthcare business and agency owners, this includes more than just having clear income statements and balance sheets. In addition, owners must provide accurate accounts receivable aging reports, depreciation reports, patient census summaries, length of stay summaries, and so on.
One additional piece of advice we offer all sellers is to maintain confidentiality. As soon as rumors of a sale begin so spread among employees, patients, and referral sources, the performance of the business can suffer. This obviously makes a sale much more difficult. So, owners should try to maintain strict secrecy until the deal is closed.
• How has Fleetridge evolved as a mergers and acquisitions firm?
Fleetridge has evolved since it was founded by Beth DaSilva in 2007. By that time, Beth already had much experience in home health. She had been advising home health and hospice agency sellers for several years with another firm, and prior to this, she had been the Administrator of a home health agency. Since its creation, Fleetridge has been closing larger and more complex transactions, and has broadened its scope to include clinical and pathology laboratories, physician practices, and medical device companies. The team at Fleetridge has also been growing, with the addition of other advisors and the creation of an excellent support staff.
• What separates Fleetridge from your competitors?
We depend on feedback from our clients to evaluate our role in the healthcare mergers and acquisitions industry, and to help us continually improve the services we provide. Based on this feedback, we know that our most unique feature that benefits our clients is a focus on teamwork. Some mergers advisors employ brokers who work independently, but at Fleetridge, each team member plays a role on every transaction. We insist on sharing ideas, and the combined strengths of the team member ultimately benefit all of our clients.
We also frequently hear from clients and buyers that we communicate is a very honest, straightforward manner. We do not try to dominate any discussions or negotiations with an arrogant style or technical jargon.
• How do you find potential buyers?
We have two general ways of finding buyers. First, we directly contact potential buyers by approaching industry players with whom we have close relationships, and regularly distributing newsletters and lists of opportunities to our database of over 4,000 email recipients. We also have a proprietary database of almost 600 private equity firms who focus on healthcare investments, and subscribe to a leading consultant that follows almost 2,400 additional private equity firms. We use these resources to create buyer lists for each transaction.
The second approach involves posting available opportunities to our own website, and to several other websites that serve as markets for companies available for acquisition. These sites are reviewed regularly by potential buyers, who contact us if interested.