For healthcare business owners intending to sell, failing to properly prepare a business for sale can quickly lead to significant obstacles in reaching a successful outcome. Here, we break down why bringing a business to market without the proper steps in place can quickly lead to complications that can jeopardize your relationship with prospective acquirers. Join our Founders as they share practical advice to help sellers determine their readiness to move forward with a sale.
As the founders of M&A Healthcare Advisors explain in the video above, businesses with under-prepared or inaccessible data can instill hesitation or distrust with interested buyers. When owners (or their representatives) can't answer key questions or quickly and accurately supply informative data about the company, buyers can lose trust and may begin to question the business’s stability or the accuracy of any portrayed performance.
Building Buyer Confidence with Rapid, Informed Responses
In healthcare M&A, prospective buyers ask data-specific questions related to the business’s financial health, risks, and liabilities. Responses to these inquiries with speed and accuracy is a critical component of maintaining trust and integrity with an interested buyer. Owners who are not fully prepared to respond to foundational questions about the performance of their business can risk communicating uncertainty to buyers, increasing the potential risk a buyer would be taking on in their acquisition. Lack of clarity can quickly erode into reduced offers —or cause buyers to walk away altogether.
A few key questions healthcare business owners should prepare to answer include:
- Financial Health and Trends? Be prepared to present data from the last 3 years, at minimum, with a strong emphasis on the profitability and growth of the organization in the trailing 12 months (TTM).
- What are the key performance indicators (KPIs)? This tells buyers about operational efficiency and growth potential in your business.
- Who comprises the management of the organization? Understanding the key roles in the success of the organization and who will be transitioning with a new owner, will be important for buyers determining their level of interest to move forward.
- Are there any pending liabilities? Buyers want full transparency to avoid any unnecessary surprises later in the process.
While this is by no means an exhaustive list of what to expect from initial buyer data requests, preparing data and answers in advance allows owners to provide confident, quick responses that boost buyer trust and keep the deal on track. For more on the 3 essential ways to prepare a healthcare company for sale, visit our post here.
The Role of M&A Healthcare Advisors in Streamlining the Process
Quality M&A Advisors assist sellers with getting their businesses in order before engaging the market and speaking with any prospective buyers. As specialists in healthcare transactions, M&A Healthcare Advisors assist in the critical role of preparing detailed, accurate financial analysis, which minimizes the potential for delays and establishes a foundation of trust from the start. Advisors also act as intermediaries on introductory buyer calls, handling general questions on behalf of the owner, allowing sellers to focus on running their business without the distraction of constant buyer inquiries.
Developing an Executive Summary (ES) or Comprehensive Information Memorandum (CIM)
A well-prepared Executive Summary or Comprehensive Information Memorandum [MT1] is an essential part of properly preparing a business for sale. This document gives potential buyers a complete picture of the business's operations, financials, and market position. As difficult as it may be to compile, we emphasize that creating this document provides the lead advisor with deep insights into the business, which enhances the advisor’s ability to represent the seller effectively.
How a Stellar First Impression Drives Success
The information memorandum is the buyer’s first impression of the business. If it’s poorly assembled or lacking in sufficient details, it can tarnish a business’ appeal. Sellers should aim for a memorandum that not only conveys the business’s strengths but does so with clarity, polish, and precision. A professional, detail-oriented document leaves a lasting impression on buyers, reinforcing the seller's commitment to transparency and preparedness.
Common Consequences of Under-Preparation
- Deal Delays: If crucial documents or answers aren’t ready, the deal slows down, giving buyers time to reconsider or even pursue alternative opportunities.
- Reduced Offers: Buyers are likely to present a reduced offer (or present no offer at all) if they sense that the business is under-performing or the data is insufficient to make that determination.
- Failed Transactions: If delays mount and buyer confidence plummets, the sale can fail entirely, costing sellers both time and potential earnings.
Why Speed is Vital in the M&A Process
In a competitive market, delays in the M&A process can quickly lead to lost opportunities. The best deals are often secured when both parties maintain momentum and trust. Under-preparation is a deal killer in that it can slow down progress, disrupt momentum, and can prevent a sale from moving forward smoothly and confidently.
Healthcare business owners need to prioritize preparation because:
- Buyers have options: Buyers can quickly move on to other targets if they perceive delays or the inability to make an accurate assessment of a business.
- Market changes rapidly: Economic conditions, regulations, and industry trends can shift. Prolonged deals may encounter new risks.
Key Steps to Prevent Under-Preparation from Derailing Your Deal
- Get Financial Records in Order Early: Ensure accurate and up-to-date financial statements, tax returns, and other key financial documents.
- Conduct a Risk Assessment: Identify any potential risks or liabilities and work with advisors to mitigate them before engaging with any prospective buyers.
- Engage an Experienced M&A Advisor: Professionals bring valuable industry knowledge and can anticipate buyer questions, ensuring you’re ready to respond efficiently.