The M+A industry regularly reminds us that it’s tough to sell any business, including healthcare companies. Published data from the likes of exit planning experts, investment banks, and trade associations suggest that somewhere between only 10-30% of businesses complete transactions.

Why such a dismal success rate? The typical reasons are logical enough: sellers are not emotionally ready to leave their “baby”; poor financials mean there are few interested and qualified buyers; the seller’s local service/product is not scalable; and/or their company is facing unknown risk in an evolving marketplace.

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?

I was fortunate to attend the ViVE Conference in Nashville earlier this week. If you are not familiar with ViVE, which launched in 2022, it merges the leadership of College of Healthcare Information Management Executives (CHIME) and the HLTH digital marketplace.

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.

The home medical equipment (HME) industry was long dominated by legacy manufacturers with a high barrier of entry. But over the past few years, we've begun to see cracks in the decades-old status quo emerge. 

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.

It's January, so many of you may be reading this article for guidance on your 2023 M+A plans. Right about now, your internal dialogue may sound like, "I want to retire soon but the economy seems unstable, so why would I sell before it corrects?" Indeed, economic and industry indicators are mixed, almost like an economic whodunnit mystery with fingers pointing around the circle of suspects, all awaiting Sherlock to tell us when to initiate an exit. But if you step back from the scene of the crime, you will notice the partygoers are all buyers and sellers who share the same intention: to complete M+A transactions.

2022 proved to be a year that did not live up to everyone’s expectations. Riding on a wave of furious M+A activity in 2021, the initial optimism was met with bewilderment as buyers became increasingly selective and cautious in the transaction process as they sought to mitigate risk.  Deals that were expected to be straightforward experienced headwinds that led to a less-than-robust conclusion to the year.  Larger global economic issues, the continuing pandemic, and uncertainty in the political sphere undoubtedly influenced the healthcare M+A market.  However, we are already seeing signs of change in 2023. Deal activity is up and buyers still have a lot of dry powder to deploy.  The VERTESS team is pleased to offer its annual year-end review as well as the future outlook for each of the healthcare verticals our Managing Directors support.  We look forward to new challenges and successes in 2023!

It's been a wild ride for M+A activity in the healthcare space these past few years, with several significant global and domestic issues impacting deal flow. The effects of the COVID-19 pandemic will be felt for a long time. Russia's invasion of Ukraine has created global uncertainty. Domestic inflation has created cautious investors. Labor shortages have decreased profits for many providers.

All of these weighed down the healthcare space, yet it's estimated that of the $1.6 trillion in "dry powder" (i.e., unspent capital) globally, 15% is expected to be allocated to healthcare. And of that 15%, I expect a good percentage to go toward behavioral health.

Following the lull of transaction activity that affected all of healthcare in the first several months of the COVID-19 pandemic, the behavioral health space has experienced fairly steady transaction activity, including some large deals that had ripple effects throughout the space.