At VERTESS, we often get a first-hand look at the good, the bad, and the ugly of post-transaction integration. No two healthcare deals are transacted the same, and no two deals will ever integrate the same. The simple truth is integration is just as much a process as completing a merger or acquisition — and likely a lengthier one as well.

The pandemic brought rapid and tremendous disruption to the healthcare industry, forcing the healthcare ecosystem to account for new pressures and challenges. The disruption also compelled many companies to halt or slow their short- and long-term plans and evaluate what they could do better and how they could achieve the improvements needed to support a struggling healthcare system. 

As we transition out of the pandemic or continue to learn how to live with COVID-19, now is the time for healthcare providers and medical device companies to shift from responding to the pandemic to recovering from it. Organizations and companies that understand this evolving demand curve will need to substantially change the way they plan strategically, and that includes incorporating virtual components or expanding their usage of these solutions. What is apparent is that the recovery from the pandemic will be partly — if not heavily — fueled by the development and integration of new technologies, particularly those powered by artificial intelligence (AI) and machine learning.

When the time comes for you to sell your durable medical equipment (DME) company, there will be a lot of work required to go from putting the company on the market to completing the transaction. But if you want that sales process to go smoothly, there's a good deal of work you'll want to complete before you start.

Here are seven of the key steps you should take that will better help ensure your company sells for a fair price and to the right buyer.

If you are looking to acquire or sell a healthcare business, something you will quickly find is that there is a lot of terminology and lingo specific to mergers and acquisitions (M+A). M+A has its own diverse vocabulary. The more you understand these terms, the easier it will be to engage in the transaction process. Even a surface-level understanding of key concepts will at least provide a foundation to better participate in conversations and ask more in-depth questions.

Below is a list of some of the most common terms and acronyms you are likely to encounter in your discussions and review of documentation. If you come across an unfamiliar concept, do not hesitate to ask one of your M+A partners, such as an advisor like VERTESS or your healthcare attorney, to explain it to you. During the M+A process, ignorance is definitely not bliss.

Is your healthcare organization thinking about focusing on acquisitive growth? Before you go all-in on the strategy, read on. This column will help you gain a better understanding of the strategy's defining qualities and what is typically required for success.

Acquisitions are increasingly a way of life in the healthcare industry. Yet one of the most essential factors for achieving success following a sale that is sometimes never discussed or only brought up toward the end of the transaction is staff retention.

Why is retention so important? Before we can answer this question, it's helpful to gain an understanding of how acquisitions may be perceived and experienced by a healthcare organization's staff.

Every January, as we begin conversations with healthcare business owners who are considering the sale of their companies, we are often asked about the previous year's market and what predictions we can offer for the new year.  2021 offered some continuing challenges due to the ongoing global pandemic, but there was still significant activity in healthcare M&A.  While 2022 is still just days old, VERTESS is keenly aware of developing trends that we believe will continue throughout the year. As each VERTESS team member has a long history in specific healthcare sectors, we are reviewing the previous year for each of those sectors as well as some projections for 2022. 

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.

We recently heard of an investor bidding more than 20x forward-EBITDA on a residential substance use disorder (SUD) treatment center with a 30-day due diligence period. This caught our attention. More poignant was that this bidder lost the deal to another investor.

It is no new news that SUD treatment providers across multiple segments are currently worth more than they ever have been historically. When Pitchbook released its 2021 Q3 report on the behavioral health vertical, we learned that in only nine months, more deals and more deal value were transacted than the previous best year on record in 2019. Some experts anticipate 2021 to finish at least 40% higher in both metrics than 2019, and SUD treatment — residential treatment, in particular — makes up a substantial portion of that activity, due to extraordinary utilization of benefits and new product designs from insurance carriers that promote mental health reimbursements such as Anthem’s “Behavioral Health Advantage” plan that is expected to launch in 2022.

Freestanding emergency departments (FSED) have seen substantial growth over the past two decades. Research published in the Western Journal of Emergency Medicine states that the National Emergency Department Inventory determined in 2001 that about 1% of all emergency departments (ED) in the United States were FSEDs. Fast forward to 2016 and the Medicare Payment Advisory Commission reported that FSEDs had accounted for 11% of all EDs nationwide. Grand View Research is projecting that the U.S. FSED market size, which was valued at around $3 billion in 2019, is expected to expand at a compound annual growth rate (CAGR) of around 5% from 2020-2027.

I have recently encountered a few situations where partners in a business do not agree on the current plan for the company, with one partner(s) is ready to sell while the other(s) is not. This is often a situation unanticipated by entrepreneurs when they decide to become partners in a business. This is not surprising. After all, the focus at the time of the partnership is usually the start of the business rather than its potential or eventual conclusion. Thus, there is rarely a conversation about the end game — the exit when one or all owners are ready to retire or move on to the next start of their career.

A business partnership where owners have equal stake in the company can lead to a plethora of problems from disagreements in operations to exit strategies. Whether you're just starting out or already functioning as a super team, it's never too early to discuss the "what ifs" for future decisions. But wait too long and it can't be too late!

Mike Gillette is a friend, colleague, and a lawyer and shareholder at Polsinelli (mgillette@polsinelli.com) who has helped many of my sellers transact. I asked him to share some insight from a legal perspective into how co-owners of a business should address issues that develop around disagreement about the future for the company. The following section summarizes his thoughts.

Is it possible for the owner of a durable medical equipment (DME) company to time the market to maximize an exit? That depends. Successful transactions come together when the following three conditions are in sync:
1. The business is ready for external scrutiny.
2. The owner is personally ready for a transition.
3. The timing of the capital market (macro) and the DME market (micro) are favorable.

The seller and a merger and acquisition (M&A) intermediary can influence control over the first two of these conditions. The third condition, on the other hand, requires a bit of luck. Let's take a closer look at these conditions and their importance in a successful transaction.