The process of selling your healthcare business or attracting investors is often referred to as “selling your baby,” reflecting the very personal nature of this important business transaction. While each transaction is unique, we have identified 20 attributes that determine the probability of successfully completing a transaction.

Once you've decided to sell your healthcare company, one of the biggest decisions you may need to make is which type of buyer you will choose. If your company attracts a variety of buyers, you're likely to have a choice between private equity (i.e., financial buyer), search fund, and/or strategic buyer. All generally have the same goals in mind, but approach deals in different ways. 

Double-digit multiples are often the buzz around healthcare conference room floors. "I just heard someone got a 15x for their business!" a business owner will exclaim — a multiple far exceeding the industry norm of 4-8x. Is such an astonishing multiple merely an urban legend or is it possible for a middle-market healthcare business owner to achieve double-digit multiples?

Over the past several years, we've seen a rapid rise in the number of new healthcare revenue cycle management (RCM) companies, existing companies launching RCM divisions, and transactions involving RCM companies. All three developments are tied to the greater demand for RCM services.

Today I want to talk to you about quality of earnings (QofE or QoE). I want to focus on this single concept because it's become one of the reasons — if not the leading reason — why healthcare transactions go sideways.

So you're thinking about selling your healthcare business. Aside from starting your company, this might be the most important step you'll take in your career. The majority of healthcare sellers will be involved in an M+A transaction once, so there is only one chance to get it right. 

Getting it right typically involves working with the right healthcare advisor/broker. This person can help you find prospective buyers, identify the right buyer for you, and successfully navigate the waters of the transaction — which will likely be choppy at times — from beginning to end. 

To help you make a sound choice of a healthcare M+A advisor, here are some questions to ask yourself as you interview prospects.

Congratulations!  You’ve just sold your business, completing an exhausting period spanning many months.  The process was made easier thanks to the support of an experienced healthcare M+A advisor, but you’re still relieved it’s over.

Yet, a question lingers in your mind: What do you do now?

This is a common experience for many sellers. After all, during the sales process, owners are often fixated on the day-to-day operations of their business or practice, negotiations with the buyer, valuation, and completing the sale. Little time was spent thinking about issues like:

Cleanup/follow-up issues that must be addressed.
The role, if any, you’ll have in the future success of your former business/practice.
How you can limit your future liabilities.
How you can help retain customers/patients and employees.
What becomes of your life post-closing.

Your post-sale experience does not need to be filled with such uncertainties.  Let’s look at what you can do, with the continued help of your M+A advisor, to make the transition from business owner to non-owner as simple and comfortable as possible.

There's the expression, "You never get a second chance to make a first impression." For many healthcare business owners thinking about selling their company, the first impression they may personally make on prospective buyers will come from a confidential information memorandum (CIM). And if that CIM doesn't represent the business in a professional, positive, and transparent manner, the owner may not get a chance to receive a fair offer.

What exactly is a CIM? It's the document used to market your business to potential buyers. It may go by other names, including a pitch deck, investor deck, the "book," or confidential information presentation (CIP). The document is typically called a CIM when used in the sale of a mature business and a pitch deck for startups.

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.

In this column, I want to talk about an alarming and growing trend — one that's leading to healthcare business owners getting paid much, much less than they deserve for their company or other potentially disastrous outcomes.

This trend concerns owners selling their companies to cold callers.

During the healthcare M+A process, the benefit of accurate financials cannot be understated. Financial reporting is the foundation on which your business is valued, and meaningful data presented in an organized fashion can lower a buyer's perceived risk. This likely means more money in your pocket on the closing date.

Yet, it is an all-too-common occurrence to see frustrations arise as a healthcare business owner works through the financial due diligence process. The lists are exhaustive, the requests elaborate, and the stakes high. By taking a few steps, even 3-6 months before you go to market, the due diligence process can be simplified in an impactful way. Sailing through financial requests allows an owner's focus to be rededicated to other, equally important parts of the sale process.

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.