Volume 9, Issue 19, September 14, 2022
Many small healthcare business owners struggle when they achieve a certain size or revenue stream. While these owners may see an opportunity to scale, there are challenges: They still have the "mom-and-pop" ideology (i.e., small company mentality) and their organization is not ready or capable of scaling up. This can be a frustrating experience for an owner. They feel their company can do so much more business, yet they lack the capital, know-how, technology, and/or experience to transform their organization from a small business (e.g., $20 million in revenue) business to a much larger business (e.g., $100 million in revenue).
Such a situation is risky for a business owner. If the owner attempts but struggles to grow the revenue and/or EBITDA of the company, this could greatly devalue the business in just a few years. But that doesn't mean owners should abandon their vision for growth. Rather, they may want to explore a sale or recapitalization.
By doing so, owners can accomplish a few things. They can get a nice, first "bite of the apple" for their business. They reduce their financial risk by no longer having so much of their finances in one basket. If they stay involved with the company as either a CEO or board member, they can then work with a financial or strategic buyer with the experience and resources to scale and accelerate growth. This can make achieving growth goals possible and do so in much less time than if the owner attempted to achieve such growth on their own. If growth is successful, the owner and existing (or new) management team would be able to get a second — and likely much bigger — bite of the apple and then cash out with the right rollover or stock incentives.
If proceeding with a sale or recapitalization is sounding like a good plan for your business, follow these steps to help find the right buyer and partner who can help you take your company to a much higher level.
Why is topgrading important when contemplating a sale or recap? This is not the time to hope you have the right people or be looking past shortcomings that make these individuals less effective in their roles. Be prepared to replace leaders or find new roles that will be better fits in support of the overall growth plan or at least consider whether training can strengthen your existing leadership team. If you have a solid team, it's still worth taking the time to identify any knowledge gaps and then invest in training and executive coaching. A financial buyer will see much higher value in an organization that comes to the table with an all-star leadership team already in place and ready to put in the work.
If you're serious about testing the waters, this is a great time to speak to an M+A advisor and receive a valuation on your organization. A good advisor will coach you as to the right time to sell or not sell. An advisor can share competitive insights (e.g., previous competitive sales and multiples) and paint a picture of what buyers are currently looking for — and, just as important, not looking for.
If you decide to sell, an advisor can be invaluable in creating that competitive environment that drives up your sale price. In addition, an advisor will aid in all the transaction negotiations and help ensure the appropriate stock options and rollover equity are included in the deal.
In most scenarios when owners want to stay on with their company and cash out even bigger in a few years, the financial buyer tends to be the clearer path forward. This is not to say a strategic partnership cannot work. In some cases, it's the right decision. However, when you are looking to drive your organization beyond your current capabilities, someone who is going to invest quickly into the company and target its key needs for growth plan tends to be the right partner.
This is also an area where an M+A advisor can prove very helpful. Most advisors, especially ones specializing in your line of business, have extensive resources and rolodexes of potential buyers and can quickly help you cast the right net to initiate discussions with high-quality, potential buyers.
Selling your baby can be emotional but exciting at the same time. Following the steps above and better understanding your options will put you in a much stronger position regardless of whether you sell or not.
If you have questions about pursuing a sale or recap, please reach out to our team of expert healthcare M+A advisors at VERTESS. We'd love to learn about your business and talk about how we can work together to achieve the best path forward for you and your company.
For over 20 years Gene has served as a commercial growth executive in several PE-backed and public healthcare companies such as Schering-Plough, Bayer, CCS Medical, Byram Healthcare, Numotion, and, most recently, as the Chief Revenue Officer at Home Care Delivered. As an operator, he has dedicated his career to driving value creation through exponential revenue and profit growth, while also building cultures that empower people to thrive in competitive environments. His passion for creating deals has helped many companies’ platform and scale with highly successful Mergers and Acquisitions.
At VERTESS, Gene is a Managing Director with extensive expertise in HME/DME, Diagnostics, and Medical Devices within the US and international marketplace, where he brings hands-on experience and knowledge for the business owners he is privileged to represent.