Perhaps the most important business transaction you will ever pursue is the sale of your business. Many healthcare business owners attempt to do it themselves and when asked if they got a good deal, many respond with "I think so," or "I got my asking price," or "I really don't know," or "It was a disaster." Often times these very capable business people approach the sale of their business with less formality than in the sale of a home. The purpose of this article is to answer the questions - Why would I use an M&A Advisor and what am I getting for the fees I will pay?



1.Confidentiality. If an owner tries to sell his own business, that process alone reveals to the world that his business is for sale. Employees, customers, suppliers, and bankers all get nervous and competitors get predatory. Engaging an advisor protects the identity of the company he represents for sale with a process designed to contact only owner approved buyers with a blind profile - a document describing the company without revealing its identity. In order for the buyer to gain access to any sensitive information he must sign a confidentiality agreement. That generally eliminates the tire kickers and deters behaviors detrimental to the seller's business

2.Business Continuity. Selling a business is a full time job. The healthcare business owner is already performing multiple functions instrumental to the success of his business. By taking on the load of selling his business, many of those essential functions will get less attention, sometimes causing irreparable damage to the business. The owner must maintain focus on running his business at its full potential while it is being sold.

3.Time to Close. The faster the sale, the lower the risk of business erosion, customer defection, employee problems and predatory competition.

4.Large Universe of Buyers. Intermediaries subscribe to databases of the various healthcare business categories that enable them to screen for buyers that are in a certain SIC Code and have revenues that would support the potential acquisition.

In addition they maintain custom databases of the various healthcare categories refined even further to hone in on only the best potential buyers for your business. A good M&A Advisor also has access to private equity groups databases that outline their buying criteria.

5.Marketing. A Merger and Acquisition Firm can help present the business in its best light to maximize selling price. They understand how to recast financials to recognize the EBITDA potential post acquisition. Higher EBITDA = higher selling price. He understands the key value drivers for buyers in a particular healthcare segment and can help the owner identify changes that translate into enhanced selling price.

6.Valuation Knowledge. The value of a healthcare business is far more difficult to ascertain than the value of a house or even the value of a "bricks and mortar" type business. Every business is unique and has hundreds of variables that effect value. Investment Bankers have access to business transaction databases, but those should be used as guidelines or reference points. The best way for a business owner to truly feel comfortable that he got the best deal is to have several financially viable parties bidding for his business. A healthcare industry transaction database may indicate the value of your business based on certain valuation multiples, but the market provides the real answer.

An industry database, for example, can not put a value to a particular buyer on a key customer relationship or a proprietary technology. Most business owners that act as their own selling agent get only one buyer involved - either another business that approaches him with an unsolicited offer or a referral from his banker, accountant, or outside attorney. Just look at the additional billion plus dollars of value created for MCI shareholders because of the competitive bidding between Verison and Quest Communications.

7.Balance of Experience. Most corporate buyers have acquired multiple businesses while sellers usually have only one sale. In one situation we represented a first-time seller being pursued by a buyer with 26 previous acquisitions. Buyers want the lowest price and the most favorable terms.

The inexperienced seller will be negotiating in the dark. To every term and condition in the buyer's favor the buyer will respond with, "that is standard practice" or "that is the market" or "this is how we did it in ten other deals." An investment banker can act as the seller's advocate with a similar experience base to help preserve the seller's transaction value and structure.

8.Maximize the Value of Seller's Outside Professionals. The seller can save significantly on professional hourly fees by allowing his merger and acquisition professional to manage several important functions leading up to contract. His compensation is usually comprised of a reasonable monthly fee plus a success fee that is a percentage of the transaction value.

The M&A Firm and seller negotiate with the buyer the business terms of the transaction (sale price, down payment, seller financing, etc.) prior to turning the purchase agreement over to outside counsel for legal review. In the absence of the Advisor, that sometimes-exhaustive negotiation process would default to the outside attorney. It is not his area of expertise and could result in significant hourly fees.

9.Maintain Buyer - Seller Relationship. The sale of a business is an emotional process and can become contentious. The intermediary acts as a buffer between the buyer and seller. This not only improves the likelihood of the transaction closing, but helps preserve a healthy buyer - seller relationship post closing. Many times the seller will become an integral part of the management team of the buyer's company after the sale. Often buyers want sellers to have a portion of their transaction value contingent on the successful performance of the company post closing. Buyer and seller need to be on the same team after closing.

A model that is becoming quite popular in the healthcare industry is for the big players to identify good technologies in smaller companies and to forge partnerships or strategic alliances with them. The larger company will have the smaller company spend a great deal of their resources and attention in educating the bigger player on their product and market.

The smaller partner will often work very hard to integrate their offering into the broad product set of the bigger partner. Finally, the smaller company will put all their eggs into this one basket of opportunity. After the larger company has effectively removed most of the integration risk on the smaller company's nickel, they then make an unsolicited offer to buy. The smaller company is often less profitable during this "try it before you buy it period." The bigger player then predicates their offer on the latest period financials.

A good investment banking firm can help the smaller company navigate and recover from this situation. Our experiences with businesses that engaged our firm as a result of an unsolicited offer from a buyer have been quite instructive. The eventual selling price averaged over 20% higher than the first offer. In no case was the business sold at the initial price.

To conclude, seller's intermediary helps reduce the risk of business erosion with improved confidentiality while allowing the owner to focus on running the business. The M&A Advisor led sale helps maximize sales proceeds by involving a large universe of buyers in a competitive bidding process. Finally, the investment banker can improve the likelihood that the sale closes by buffering buyer - seller negotiations and by balancing the experience scales.