In this column, I'm going to share my thoughts on today's behavioral health and intellectual and developmental disability (I/DD) markets. I'll speak to the macro environment because those issues are impacting the decisions of buyers and lenders. In turn, these issues impact the values buyers are willing to pay for your company. I’ll also address how you, as an owner in this space, can use this information for your own planning purposes — that is, how to do what’s best for you.

In this SalientValue column, I'm going to touch on a number of points I hope healthcare business owners will find helpful as they consider the current position of their companies and plan for their futures. There are warning signs ahead, and having been through the ups and downs of various business cycles, I'd like to highlight some concerns and share some recommendations.

them telling me they’ve heard of similar companies selling for extraordinarily high prices. Those prices are often expressed as a multiple of revenue or earnings before interest, taxes, depreciation, and amortization (EBITDA). They’ll apply a multiple to their business and tell me they’d be happy to sell at that price. While this is not an unreasonable approach, oftentimes the multiples they’re using are not realistic.

The story of Good Hope Manor is one that's easy to get behind. Launched in 2003 by Linda and Chris Witzlib, Good Hope Manor is an intellectual/developmental disabilities (I/DD) company providing residential and day supports to adults via six integrated, community-based group homes around Wisconsin.

Good Hope Manor earned its reputation of providing the highest quality residential care to its clients. The team offers all types of services for mentally handicapped individuals and provides a supportive environment regardless of a client's medical conditions. Every resident is treated like a member of the family and receives a wide range of services that can include special diet plans, diabetic care with insulating administration, independent living therapy, transportation, entertainment, music and pet therapy, and hospice care.

TBI Duluth is a remarkable story. The company is comprised of two companies headquartered in Duluth, Minn.: TBI Residential and Community Services and Pathways to Achievement. TBI Residential and Community Services provides residential foster care services, operating 29 licensed homes for adults ages 18 and up. Pathways to Achievement provides high-quality home healthcare and support services. The business serves clients with complex physical and emotional needs, providing care involving medical, behavioral, and everyday living skills.

As you may or may not know, I have been an advisor to owners of provider agencies supporting individuals affected by an intellectual and/or developmental disability (I/DD) for more than 30 years. I am fortunate in that I love this work. It is enormously gratifying to earn a living by helping others reach their goals. I am able to help business owners reach their financial goals and buyers achieve their growth and value-creation goals while improving the lives of employees and clients alike through the right transaction.

The above is a map put together by our team at VERTESS. This map identifies some of the larger intellectual and developmental disability (IDD) competitors in the country, the states in which they do business, and their owner or ownership structure. Every healthcare industry uses this tool. These maps provide valuable insight into the competitive landscape of the respective industries. They are also a way of demonstrating why a healthcare business owner would be wise to partner with a merger and acquisition (M&A) advisor when the owner decides it is time to begin pursuing a sale of the company. Along with business size and service lines, buyers are often categorized by the geographic markets in which they're seeking acquisitions. Advisors should be aware of who is looking for acquisitions where.

For many entrepreneurs, moving on from their business — especially if it's a business they founded — is one of the most difficult decisions to make. For owners of provider agencies that support individuals affected by an intellectual and/or developmental disability (I/DD), the decision can prove even more difficult when the owner has a personal attachment to and passion for the space. However, while many owners find it difficult to start the process of selling their business, the reality is that it's a necessary and important step. As the old adage says, "Failing to plan is planning to fail."

Physician practice owners are often surprised to learn how private equity (PE)-backed companies structure their acquisitions and the relatively small amount of cash paid at closing. It's significantly less than owners (sellers) expected.
Below is a simple breakdown of how the proceeds from a typical PE acquisition works. The selling price is generally paid in three parts. Understanding the timing of these payouts may influence when owners choose to sell their practices.

Over the past few months, as 2018 wound down and 2019 kicked into high gear, we've seen a steady flow of reports analyzing U.S. healthcare merger and acquisition (M+A) activity from last year and outlining predictions for this year. Let's examine what these reports identified as some of the key developments of the year that was and forecasts for the year that is and then discuss what it all means for your business.