Your Primer to Healthcare Mergers and Acquisitions

Choosing a Healthcare M+A Advisor: 6 Questions To Ask Yourself

Jan 31, 2023

Volume 10 Issue 3, January 31, 2023

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.

1. Do I like this person?

Set up several calls with different advisors/brokers and interview them. It always helps to talk with multiple people so you can compare key qualities, including responsiveness and attention to your needs. Did you receive prompt responses to your communications? Were all your questions answered completely and with the level of detail you would expect? 

While those are important factors, the advisor's personality and how you connect with this individual matters a lot. Here is where you may want to go with your gut. Is this a person you will feel comfortable meeting with frequently? Can you envision discussing your concerns and asking your questions without feeling judged or ignorant? A good advisor understands that this is a foreign process for you and it’s their job to know the M+A side, not yours. You should feel comfortable asking the questions that might seem simple but are not your area of expertise — and why should they be!

Your advisor will be your partner in this process. They will be representing you in communications with multiple buyers and eventually the people you will work with to transition leadership of your company. You need to be ready and willing to share all details, concerns, and issues about your organization and the transaction process so your advisor can help most effectively communicate with you and prospective buyers. You want to have great trust and comfort in the advisor you choose. 

If your answer is yes to all the above, then be sure to clarify whether this person will be your advisor or if you’ll be passed to a junior associate or someone else in the organization. Sometimes the person you meet will not be the person you will work with. If that is the case, go through these questions with your primary point of contact. 

2. Does this person know my space? 

There are many brokers and advisors, but do they understand the healthcare business you run? There are nuances to a healthcare company that are unlike a commercial business, manufacturing, or other non-healthcare business. Prospective buyers often need an explanation of a company's billing, payor system, and staffing intricacies, among other qualities. Sellers often won't have the time or energy to allocate to these initial conversations since they are focused on running their company. 

Determine if the advisor understands your company, including its service delivery, payor atmosphere, and client demands/needs. The advisor should have a clear understanding of who your likely buyers will be before you come to market because they understand the space and its current players.

3. What types of buyers does this person have contacts with?

Sellers usually believe that the most important role of an advisor is to find a buyer. Believe it or not, finding a buyer is usually not difficult. In fact, you may have been approached by multiple buyers through the years. There are brokers who only represent buyers. These brokers will bring business owners directly to their buyer client who will pay the broker's fee. If you sell your company in this manner, you avoid paying the advisor's fee.

But, and it's a big but, taking this approach will prevent you from the benefit of receiving multiple offers that give you choice and can drive up the price of your business. It's possible the buyer you're introduced to by a broker could turn out to be a good option to acquire your company. However, the broker is representing the buyer, not you. Going through the full, sell-side process without the benefit of an advisor could prove difficult. 

A good advisor should have a database of buyers. This will include financial buyers (e.g., private equity and family offices) and strategic buyers (e.g., providers already in your space or a similar space who are looking to expand), through which to generate interest in your company as it comes on the market. You should be able to ask your advisors about the active buyers in your space and run a limited process, where only a few buyers are identified, or a full auction process, with multiple buyers. This database should be of organizations that have expressed interest in acquisitions — not just any provider in the market. In other words, the database should be very select.

4. Is this person trying to upsell me?

One of the first questions sellers usually ask M+A advisors is, "What is my company's value?" At VERTESS, we provide a free market analysis. We call this a BOTE, or "back of the envelope" analysis. It's designed to help you understand the range of offers you will likely receive if you go to market. 

Many other advisors offer this as well, and you may be tempted to make your decision based on the highest estimate provided. But be aware: No one can promise you a purchase price since it is entirely based on the market, the buyers, and what buyers are willing to pay. All advisors can do is draw from current deals and make an educated guess of what you would be offered. You and your advisor should discuss your hopes as well as expectations so that once you’re in negotiations, your advisor can work to get the best offer.

Some brokers and advisors will inflate multiples and promise a high selling price for your business. Don't be seduced by high numbers that may sound too good to be true. They probably are.

5. Can this person do everything I need them to do for me and my company?

As mentioned earlier, most sellers go through a sale one time in their career. If this describes you, you'll want to find an advisor who will hold your hand every step of the way. The first steps include an advisor learning about your organization, working with you to develop a confidential information memorandum or marketing tool, and helping identify the best buyer with you. 

Many people believe that once a buyer is identified, the advisor's work is done, and the sale will proceed smoothly from there. That couldn't be further from the truth. The diligence process is the most time-consuming and difficult part of the transaction process. In fact, this is the stage where if a deal falls apart, it will be because of diligence. You will need someone who will control the information shared with the buyer, maintain communication throughout the process, represent you when things get contentious (as to avoid straining your relationship with the buyer), ensure the progression is timely, and get the deal to close. 

A true test of an advisor's worth is their ability to get you to the finish line — not 50%, not 75%, not 99% of the way. All the way.

6. Will I have a voice? 

You should never feel like you must take an offer or sell to a particular buyer. A good advisor will facilitate a process that involves you in deciding your buyer based on your preferences. For most sellers, this is usually a combination of the best price and best cultural fit. You should have the opportunity to pause a process and try again if you don't find the right buyer the first time out. You should be the one making decisions, with a good advisor serving to inform, educate, listen, and act in your best interests.

The Easy Answer

There are many questions you will want to ask yourself as you proceed with a sale of your company. One of them may be: "Do I need an M+A advisor?" The answer to that, whether you work with a member of the VERTESS team or another healthcare M+A advisor, should be "yes." 

Partnering with a knowledgeable and trustworthy advisor can help you have a greater possibility for success in not only identifying a buyer, getting the best price, and completing a transaction, but doing so with as little stress as possible. The right advisor will help bridge the gap between all of the different players and better ensure a seamless process, so be sure to ask your questions and find the best representation for you and your company.

Rachel Boynton

Rachel Boynton CM&AA

Managing Director/Partner

As Co-Founder of LifeShare, a multi-state human services and healthcare organization, Rachel has a unique background of over 20 years of successful operational and executive experience, in addition to an MBA in Healthcare Management. She began her professional life as a home care provider, an experience that created the foundation for the innovative quality and success of LifeShare, while also changing her life. At LifeShare, she managed their Operations (Adult Day/Residential; Child Therapeutic Foster Care; HCBS; Child Therapeutic Day/Diversion Services, and Educational Programming), Finance, HR and Quality Assurance (facilitating COA accreditation and policy/procedure implementation). After selling LifeShare to Centene, Rachel remained during the transition of management and helped to provide outcome measurements and COA compliance reporting. At VERTESS she is a Managing Director providing M+A advisor and consultant services, specifically in the I/DD, behavioral health and related healthcare markets, where systems are rapidly evolving, and providers are striving to adapt strategically to diverse challenges.

We can help you with more information on this and related topics. Contact us today!

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