Selling your company can be a
time consuming process.
Selling your company can be a
Understanding and compiling the information
below will better prepare you and your advisory
team for when you decide to enter the market.
Financials, Profitability, and Important Deal Calculations
Financials: Income Statements and Balance Sheets. We can utilize accrual or cash basis financials to begin assessing the value of your business. A buyer will typically request your last 3 years Income Statements (P&Ls) and Balance Sheets during their initial financial vetting. CPA reviewed financials are preferred, but not necessary to sell your company. We can provide recommendations, if needed.
Net Working Capital (NWC): Calculating its value. Depending on deal structure, the sale can include (or exclude) working capital, which is current assets (including Inventory, if applicable) less current liabilities. There are multiple facets to this calculation, including short-term debt, reducing your NWC position, or a surplus of inventory increasing the NWC value. It is of value to understand this metric leading into a sale process.
Adjusted EBITDA: Understanding your cash flow. How profitable is your company when factoring in personal, non-recurring or expenses that can be normalized? Adjusted EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) is used to determine your business’s cashflow and normalized profitability. A major part of your company’s value is measured by TTM (Trailing Twelve Months) Adjusted EBITDA, but there are other factors to consider which include geography, company scale, healthcare segment, and third-party contracts.
Personnel, Record Keeping, Relationships, and Contracts
Personnel: Define your organizational structure. List all your employees from senior management down to rank-and-file and clarify which key players will transition post-acquisition. Contrary to popular belief, it is standard for buyers to retain most, or all, of the incumbent staff. Be prepared to share information on your employees (along with an outline of payroll and benefits programs), especially if you desire to exit shortly after the company is acquired. From our experience, we advocate against disclosing any information of the sale to your employees until the tail end of the process or even after the transaction is finalized.
Key resources and relationships: Compile referral sources, patient information, and provider relationships. A buyer will acquire either the Stock or Assets of your company. This requires that contracts, employees, referral sources, leases, and other assets (tangible or intangible) are assigned to the buyer. Be sure that the relationships behind these are in good standing. Review the transferability provision of all contracts, especially those with major payors. This will inform the transaction timeline and greatly minimize delays while in process.
Long-Term Obligations: Summarizing your key contracts. A property lease, payor contract, and/or vendor contract could represent an enhanced or diminished level of buyer interest, depending on the terms. Creating a summary of contracts, along with their most important provisions, will provide necessary insight for a buyer while they assess your business.
Organize Your Records: Every material document will be reviewed. It is important to have copies of all contracts, leases, insurance policies, healthcare audits, tax returns, corporate documents, title, and licenses readily available. We also recommend having a transactional attorney available in anticipation of the stock or asset purchase agreement and to expedite the due diligence process. We can provide recommendations, if needed.
Establishing the Market Value of Your Business
High Level Assessment: Outline the strengths and weaknesses of your company. Along with the many strengths that have made your operation a success, sophisticated buyers know you also face challenges. What are they? It is better to identify both your strengths and weaknesses early in the process. Developing trust between buyer and seller could be the most important aspect of the sale process. We can begin doing so by disclosing all aspects of your business early on and observing if the buyer is consistent and honest with their assessments.
Understand the Value of Your Company: The current value of your business should be compelling enough to engage in a sale process. Our valuation methodology is based on the market value of your business, not a theoretical value. We understand current market trends, multiples of your unique healthcare segment, and have comparative data which includes transactions in your healthcare segment. Before going to market you should have keen sense of how much your company is worth. We can help you determine the right time to sell your company to maximize your value.
Hire an M&A Advisor: An integral part of a successful transaction. It is essential to have an experienced, third-party representative to manage the sale process. A seasoned healthcare M&A advisor will properly position your company in the market and maximize the value of your business while always placing your best interests first. It may not be us, but we encourage you to find a trusted advisor and ally to guide the sale of your business.