Sponsored by TUSK Practice Sales
As the complexity of the prospective buyers for your practice increases, so do the deal terms and conditions leading to a successful transition. This complexity leads a lot of sellers down a path that seems incredibly easy at the outset, only to unravel due to unforeseen complications, valuation changes, or even worse, a final deal structure that largely favors the buyer. Understanding the process, terms, players, and your team can help mitigate risk and ensure a successful transaction. Here are a few things to keep in mind when considering the sale of your life’s work.
Understand the Buyers: Most buyers are either private equity (PE) or management services organization (MSO) groups backed by PE. They are well trained in the fi nancials surrounding a business and all the deal terms relevant to a fi nancial transaction. They understand all the pieces that play into their favor both during the closing process and after the close of the transaction. When they control the process, the deal will refl ect what their goals are, and likely not yours.
Financial Due Diligence: Understanding your financials is crucial, but ensuring they are respected and accurately refl ected in the fi nal deal terms is paramount. All transactions are based off a net cashflow measurement known as Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Properly determining what your true EBITDA is requires a full rebuild of your fi nancials from the general ledger up, complete with addbacks, non-business expenses embedded in the business, one-time costs, and a full understanding of provider compensation that would be utilized post close. When controlled by the seller’s advisor, there is an assurance of accuracy in the numbers. When controlled by the buyer, they are incentivized to whittle this number down as low as possible to lower the value of the deal as a whole.
Proper Deal Term Negotiation: In the sales process, you are going to hear terms like EBITDA, multiple, holdback, earnout, cash at close, rollover equity, indemnities, claw back, and numerous others – and that’s likely on just the fi rst page of the contract. While EBITDA and multiple are often the focus, it is the remaining deal terms that actually dictate the true value and likelihood of attaining that value throughout the life of the partnership. As a buyer at one time in my career, I would happily provide you with a 20x EBITDA offer for your business if you will allow me to dictate all of the other terms and conditions of the deal. The devil is in the details and understanding/ controlling those details and the narrative are far more important than your EBITDA or multiple.
Having An Advocate: This is not a process for the faint of heart. At their core, buyers are heavily incentivized to buy low and sell high. In fact, the primary method of “growth” for these companies are to buy numerous individual locations at the lowest price possible, bundle them all together and sell them all as a group for the highest price possible. This is called arbitrage. With that as the basic core value of these investors, you need to understand that the process is heavily tilted in their favor. Having a deal team complete with a mergers and acquisitions (M&A) transaction advisor, personal wealth planner, attorney and accountant is critical in helping you to navigate the more complex aspects of the sale.
About the Author
Josh Swearingen
Josh is the director at TUSK Practice Sales and has over 15 years of leadership experience in the healthcare industry. He most recently served as the chief executive officer (CEO) for Vesper Alliance, an MSO located in Cincinnati and Columbus, Ohio. Josh is also the co-founder of Reverse Aesthetics, a medspa and anti-aging practice in Columbus, Ohio.
