Your Primer to Healthcare Mergers and Acquisitions

Creating Remarkable Value: A Primer For Healthcare Providers (Part I)

Mar 29, 2016

by David E. Coit, Jr.

By David Coit Jr., DBA, MBA

Volume 3 Issue 7 March 29, 2016

Robert Kiyoshi wrote the following in Rich Man, Poor Man:

“It’s not how much money you make, but how much money you keep, and how hard it works for you and how many generations you keep it for.”

Though not focused on healthcare, he could easily have been talking about the challenges and opportunities available to the leaders of today’s healthcare companies. How do I build high quality, sustainable value in my company while delivering good services and/or products?

As with many organizations, healthcare business owners can create significant value in four fundamental ways:

  • Increase expected future growth rates in earnings
  • Extend the length of a high growth period
  • Improve cash flow generated from existing investments
  • Decrease the cost of capital while increasing future cash flow.

There are a number of very practical things healthcare providers can implement to improve their future bottom line:

  • Enhance operational effectiveness by streamlining internal processes and carefully monitoring expenses throughout the organization
  • Maximize the ratio of ancillary services to client revenue
  • Selectively reduce future expenditures related to technology assets by outsourcing
  • Lower employee-related expenses while maintaining pay/benefits quality through HR alternatives, like professional employer organizations (PEOs)
  • Carefully manage vendor expenses and always consider alternatives
  • Link some management compensation to performance (just like payers are beginning to do!)

When high growth periods occur in any healthcare operation there are some simple strategies that can be employed to extend the positive cycle:

  • Hire a contracted “rainmaker’ or two with related healthcare experience to increase visibility and market penetration
  • Increase price/rate competitiveness through service delivery enhancements that have immediate value for clients/payers
  • Improve service quality enhancements, such as low wait times, friendly knowledgeable staff, clean facilities, ample parking, and so on
  • Strengthen market position and increase barriers to entry though branding and licensing.

These are not exhaustive lists, but they offer a systematic approach to building impressive value into the future. As Mr. Kiyoshi maintains, it’s not just about establishing a healthcare business with revenue. It’s also about thoughtfully deploying your resources with the future in mind.

In two weeks, I’ll introduce concepts for creatively improving cash flow and reducing the cost of capital to increase sustainable value.

David E. Coit, Jr.

David E. Coit, Jr. DBA, CVA, CVGA, CM&AA, CBEC

Director, Finance + Valuation/Partner

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.

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

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