Volume 5 Issue 13, June 19, 2018
The Substance Use Disorder (SUD) marketplace is dynamic and continues to be impacted by many factors. The valuation of SUD programs is also subject to change, ranging from in-network vs. out-of-network reimbursement and in-house labs to the increasing focus on outpatient services and longer-term social support. We can expect more flux that will affect how SUD companies are valued.
One trait of consistently successful treatment programs is that they are agile enough to adapt to these changes. However, there is something more profound “under the hood” of these companies that allows them to sustain agility with a strong organizational foundation:
Practical plan of action – Strong SUD programs typically have a plan for their growth and diversification that includes some form of specific goals and objectives. The very best companies build the plan with management input even if it’s as simple as a one-page document. Buyers value the fact that a plan is in place even when they want to accelerate growth.
Disciplined plan execution – Evidence that a plan has been implemented and that it is monitored and adjusted over time is a value-add for any SUD agency. Of particular importance to most buyers/investors is whether the company entertained growth opportunities consistent with the plan and/or made deliberate adjustments along the way.
Long-term focus on building value – If a SUD organization targets growth, an important part of the plan includes some measure or ROI over time, especially when significant human and financial resources are involved. What type of return was expected and what was the actual outcome? How do they manage their resources, so they didn’t burn everyone out and/or run out of cash? Sophisticated buyers pay attention to these dynamics.
Balanced, contemporary marketing – The SUD did not begin with, nor did not end with, Google ad words. Social media and great websites remain a very important part of today’s marketing, but so do personal referral networks and actual on-the-ground marketing with existing and potential referral sources. Investors will always look at census trends, and they will also want to know about the diversity of your referral sources.
Supportive culture – Most successful treatment programs are very demanding environments for all involved. Sustaining the good outcomes has a lot to do with offering the right kind of support to management and clinical staff while retaining them as a result. This may be the very first topic for many investors, especially financial buyers.
Diverse, evidence-based clinical practices– Why is it that you often find some of the best SUD companies blend high treatment fidelity with tremendous diversity in the treatment modalities offered? Because they know that clients and referral sources value evidenced-based practices and they also want a program that pays attention to the individual preferences of clients. The blend of the two is always appreciated by knowledgeable investors.
Turbulent markets like SUD services can be incredibly flashy as buyers and investors rush in for high multiple investments in sexy niche areas. There is nothing wrong with the success of these investments, but the best deals are usually those where the seller focused on the basics while adjusting to the specifics of an evolving marketplace. And you’ll always see the evidence in the valuation.
David is a seasoned commercial and corporate finance professional with over 30 years’ experience. As part of the VERTESS team, he provides clients with valuation, financial analysis, and consulting support. He has completed over 150 business valuations. Most of the valuation work he does at VERTESS is for healthcare companies such as behavioral healthcare, home healthcare, hospice care, substance use disorder treatment providers, physical therapy, physician practices, durable medical equipment companies, outpatient surgical centers, dental offices, and home sleep testing providers.
David holds certifications as a Certified Valuation Analyst (CVA), issued by the National Association of Certified Valuators and Analysts, Certified Value Growth Advisor (CVGA), issued by Corporate Value Metrics, Certified Merger & Acquisition Advisor (CM&AA), issued by the Alliance of Merger & Acquisition Advisors, and Certified Business Exit Consultant (CBEC), issued by Pinnacle Equity Solutions. Moreover, the topic of his doctoral dissertation was business valuation.
David earned a Doctorate in Business Administration from Walden University with a specialization in Corporate Finance (4.0 GPA), an MBA from Keller Graduate School of Management, and a BS in Economics from Northern Illinois University. He is a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.
Before joining Vertess, David spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During his commercial finance career, he analyzed the financial condition of thousands of companies and had successfully sold over $2 billion in corporate debt to institutional buyers.
He is a former adjunct professor with 15 years' experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.