Maintaining a client’s confidentiality during the sale process is a vital aspect of M&A. At M&A Healthcare Advisors, we understand the importance of protecting sensitive company details from employees, competitors, and other third parties in the market.
When you’re ready to sell your healthcare business, maintaining confidentiality is critical for ensuring stability and a successful transaction. Employees tend to have a negative reaction to the news of a potential sale, often fearing that it signals the end of their employment. This can lead to unrest, decreased productivity, and distractions that disrupt daily operations. If competitors catch wind of the sale, they may try to poach key staff, further complicating the process. Running a sale is already challenging, and rumors or fear of change can add pressure on ownership as operational staff grow anxious about their future. Maintaining confidentiality during the sale process is essential to prevent unnecessary complications and to retain control.
This article explores the strategies we utilize to safeguard your information. Through tools like teasers, Non-Disclosure Agreements (NDAs), reliable buyer vetting, a thorough approval process, and state-of-the-art virtual data rooms (VDRs), the M&A Healthcare Advisors team takes a comprehensive approach to managing and protecting your sensitive information throughout every stage of the sale process.
The Importance of Confidentiality in Healthcare M&A
While confidentiality during the sale process is critical in any M&A process, it is of the utmost importance within the healthcare industry, where HIPPA compliance requirements are key and sensitive patient and business information is at stake. Breaches in confidentiality can quickly lead to operational disruptions, loss of trust among staff and clients, and could provide competitors with an undue advantage in your market. We have adopted a rigorous approach to maintaining confidentiality at every sale stage.
Teasers: Keeping Your Identity Concealed
One of the primary tools used to ensure confidentiality during the sale process is the strict utilization of a teaser throughout the marketing process. A teaser, also referred to as a blind summary, presents an acquisition opportunity to potential buyers without revealing the identity of the target business. The teaser provides essential details like your company's financial health and historic performance, operational aspects like census details and payor mixes, while omitting identifying information such as business name, specific location, or any unique/identifiable services offered. This allows interested parties to evaluate their level of interest in an opportunity without compromising your privacy.
Example Teaser
$11.2 Million Medicare Certified Home Health Agency located in California
M&A Healthcare Advisors is pleased to present a CHAP accredited, Medicare and Medicaid (Medi-Cal) certified Home Health agency based in one of the most densely populated and affluent regions of California. The Company was founded in 2015 and received their Medicare license in 2016. They provide a variety of services including Skilled Nursing, Home Health Aide, Social Work, Physical, Occupational, and Speech Therapy, as well as the full range of assistance with Activities of Daily Living (ADL).
In 2019, the company generated gross revenues of $6.25 million and in 2020, they grew to approximately $9.2 million of annualized revenue. In 2021, for the 8 months of January - August, the company generated $7.5 million of revenue. By year end, they are estimated to generate approximately $11.217 million in revenue with an adjusted EBITDA margin of $3.765 million (33.6%), which does not include an allocation for add-backs. Over the 3-year period from 2018 - 2021 (YE Estimate), the company’s compound annual growth rate (CAGR) is over 55%. In each of the last 4 years, the Company’s adjusted EBITDA margin has been at or above 30%. Their higher-than-average margins are attributed to their well-established hiring practices, operational efficiencies, and contracts with a Managed Care Organization (MCO) payor. The MCO contract is with one of largest HMOs in the country, who consistently utilizes third-party home health partners to adequately manage their large and growing population of home-based patients receiving all forms of clinical care.
Over 95% of the company’s reimbursement derives from this MCO and approximately 5% comes from traditional Medicare. It is estimated by year end 2021, the company will service over 2,500 patients and conduct over 50,000 patient visits. The Company expects that new ownership will continue to consistently grow its MCO patient base and will see substantial growth with Medicare patients, if focus on servicing these patients is applied.
All employees are expected to remain, including key management personnel. The sellers are not involved in the day-to-day clinical operations. They are willing to assist during a transition period but desire a full exit from the operations shortly after completing the sale.
For illustrative purposes only and is not representative of any current offerings. Teasers may be subject to certain disclosure requirements as well as distribution restrictions.
Non-Disclosure Agreements: Legal Protection for Your Information
Upon a buyer expressing intent to learn more about a particular acquisition opportunity, every potential acquirer is required to sign a unique Non-Disclosure Agreement (NDA) bespoke to the individual business opportunity at hand (no blanket NDAs). Before any information (beyond the teaser contents) is shared, potential buyers must sign an NDA. This is non-negotiable. This legally binding document ensures that all parties understand the obligation to keep all disclosed information confidential for a specified amount of time. It also outlines the consequences of any breach, providing you with legal recourse should there be unauthorized disclosure.
Consistent Vetting Practices: Ensuring Both Financial Capabilities and Strategic Fit
While a buyer may sign the NDA to learn more, we take the added step of speaking with every interested buyer who has signed the NDA as a means to qualify not only their financial capability for the prospective acquisition, but also the strategic fit and investment thesis they are operating under. While some buyers may sign NDAs simply as a means to better understand the market and types of acquisition opportunities available, ultimately demonstrating little intent to actually pursue a seller’s business, we take the step of meticulously vetting each and very buyer to ensure your information isn’t going into the hands of a buyer who has no legitimate interest in pursuing next steps.
Buyer Approvals: Ensuring No Unqualified Parties Review Your Information
Once we have a clear understanding of a buyer’s financial and strategic capabilities, we go through a pre-defined approval process with our client before releasing any company information. Depending on the preferences of our client, final approval authority can rest entirely on the client’s discretion, entirely on our team, or some combination of both. Whatever our client is most comfortable with, at the time, we are happy to work with.
Secure Data Room: Tracking All Buyer Progress Down to the Letter
Once a buyer has gone through every prior security step and received approval, they are invited into a secure virtual data room (VDR) where the transaction materials are located – included but not limited to a Confidential Information Memorandum and any addendum materials (financials, contracts, etc). Within the VDR are security features allowing our administrative team to track a buyer’s every movement within the room. From tracking the time and day they viewed a particular document, the duration of their review, and how much of the data they have reviewed in the entire room, are just a few of the standard features we are tracking with interested buyers. We also have the ability to restrict downloads of any company data, enforce watermarks on allowed downloads, and update information, real-time, as the process progresses. Sharing client information through a VDR is yet another added step of security to protect our client’s best interests.
Internal & External Confidentiality: Protecting Information from Employees and Competitors
Beyond the steps we take to protect a client’s confidentiality, it is just as crucial to maintain confidentiality within your organization and management team(s). We recommend that business owners carefully control any news about a prospective sale amongst their employees, limiting it to a need-to-know basis until any sale is finalized. This approach minimizes internal disruptions and keeps your workforce focused on their roles rather than the potential fears or impacts of a sale.
Additionally, as mentioned above, in most cases it is vital to ensure that competitors remain unaware of any prospective sale process. M&A Healthcare Advisors works diligently to prevent any information from reaching your competitors that could jeopardize your market position or provide an undue competitive advantage.
Your Privacy is Our Priority
Selling your healthcare business is a significant decision, and maintaining confidentiality during the sale process is crucial to protecting your best interests. M&A Healthcare Advisors prioritizes your privacy through the use of teasers, Non-Disclosure Agreements, vetting protocols, thorough approval processes, and the utilization of a secure virtual data room. With these measures in place, you can confidently engage in a prospective sale, resting that your sensitive company information will remain secure throughout the entire process.
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M&A Healthcare Advisors is here to guide you, throughout the selling process.