Articles NEW2020-02-05T14:54:53+00:00

Home HealthCare Articles, Resources & Case Studies

From Team M+A of American HealthCare Capital

Recent Articles

Frequently Asked Questions

Concentration Risk2020-08-26T12:18:04+00:00

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Compliance Risk2020-08-26T12:15:27+00:00

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How is my company valued?2020-08-26T12:14:24+00:00

We establish a valuation range based on transaction data we have within our firm. The valuation metrics are based on EBITDA, Revenue, and certain components specific to your healthcare segment. For instance, census, geography, services, may all play a part in increasing or decreasing value.

In general, Income (financial) and 2) Operational Benefit will add to the value, whereas certain 3) Risks will detract from value.

  1. Income for the purposes of valuation starts with Revenue. In most cases, we know the revenue per patient. Profit is used for valuation in the form of cash flow, or adjusted EBITDA.
  2. Operational Benefit is based on quality of labor (caregivers), a differentiated product or service, or strong contracts. With one or more of these we can usually drive a higher multiple.
  3. Risk will reduce the multiple. Risk are usually based on patient concentration, high attrition, non-compliance, or pending litigation.
Formal valuation2020-08-26T12:13:14+00:00

(Services we provide and costs. )

Preparing for valuation call2020-08-26T12:12:26+00:00

Watch 10 Ways to prepare your company for sale.

Need to Know: Your current Year-to-date and Previous Year Revenue and EBITDA (or Profit)

Nice to Have:

Home Health – Hospice – Private Duty: Patient Count, Hours Billed, or Census

Pharmacy: DIR Fees, Allocation of Drug Therapies by Revenue, Bed Allocations (LTC Rx)

Behavioral Health: Type of Treatment, Where is the patient treated primarily?

I’m concerned about selling to a larger corporation. What can I expect?2020-08-26T12:10:32+00:00

We have Case Studies, Press Releases, and Reviews from transactions with Large Strategic Corporations, such as CVS or Amedysis, which we are happy to share. We find that doing deals with these companies is significantly easier than working with financials firms. They work faster, understand what they are buying, and are less likely to adjust the pricing and terms if the diligence is has some negative findings.

How does a Private Equity structure their deals?2020-08-26T12:09:55+00:00
  1. They start with a Thesis. This is a sector focused investment strategy. For instance, buying Infusion Pharmacies because they are not adversely effected by PMBs and they are in high demand based on the prevalence of Home Based care.
  2. Find a Platform Company. A company with which they will buy other companies, which are called “Add-ons”. This becomes their Portfolio Company that they will attempt to sell later for a Return on Invested Capital (ROIC). If your company is smaller it will most likely be an “add-on.”
  3. If they believe the Owner/Operator is vital to the success of the business they will offer him an Employment Position and Rollover Equity. We will negotiate all aspects of this, including salary and how the Equity is treated relative to the other shareholders. Ideally we want the seller’s equity to be Pari Passu (or equal) to the other equity.
  4. All Private Equity has Limited Partners (LPs) & General Partners (GPs). Simply put, the LPs put up the capital and the GPs run the Fund and Operations.
  5. When valuing your business, the GPs negotiate based on Multiple of EBITDA. Ultimately they will want to improve the business and greatly increase the EBITDA and currently drive up the Exit Multiple. For instance, if a hospice is purchased as an Add-on at 5X adjusted EBITDA the PE firm will want to see the Portfolio Company EBITDA increase by a factor of 5 to 10 times. At this point, the Exit Multiple may also increase give the larger size of the company.
  6. It is vital that a detailed LOI be negotiated before initiating a sale to a Private Equity Group. They only buy a small percentage of the deals they review. This is due to a very onerous Due Diligence process and Purchase Agreement negotiation.
Organic Growth vs. Growth through Acquisitions2020-08-26T12:09:03+00:00

Organic Growth is done with a business increase their revenue through marketing and recruiting. Acquisitions growth is accomplished by finding small companies to “add-on” to the business.

How is the real estate valued as part of total consideration?2020-08-26T12:07:59+00:00

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Do out of network providers have value similar value as in-network?2020-08-26T12:06:55+00:00

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What types of behavioral health companies are most sought out to acquire?2020-08-26T12:06:26+00:00

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Do in-network contracts increase the value of my business?2020-08-26T12:05:49+00:00

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What is the future of Specialty Pharmacy?2020-08-26T12:01:29+00:00

See article in blog

Unless your plan is to consolidate with a larger corporate pharmacy, the future of independent specialty pharmacies is bleak. On average, Specialty Pharmacies below 50MM or revenue are making less than 4% profit. In many cases, we don’t know the adverse effects of DIR fees on the P&L, further driving down profit. If the Specialty is in a certain therapies (ie Dermatology) not represented by PBMs then they can gain market share without risk of being undercut. However, most Specialties tend to be general in scope and hence lose differentiation. The valuation for these tends to be quite low.

Reasons CVS are good buyers2020-08-26T12:01:00+00:00

CVS Retail, Care Mark, and their other acquisition groups for LTC and Infusion pharmacy are extremely professional and respectful of the process. Most of their acquisitions team were former operators, like our sellers. Sure there are some bad stories out there, but we ask that you give CVS a chance. If they decide to purchase, you’ll be pleased you did.

What are the benefits of a “File Buy”?2020-08-26T12:00:28+00:00

Speed. File buys happen fast and usually they are the best deals for the retail seller. The biggest challenge with a File Buy is that the current location cannot operate as a pharmacy for the foreseeable future. Usually this entails a negotiation with the landlord. If the location is re-opened as pharmacy in the short-term then it will usually come at a large discount to the seller.

Can I sell if I’m not in compliance with a PBM contract?2020-08-26T11:59:52+00:00

Yes. It is virtually impossible to adhere to all PBM provisions. Buyers understand this. However, we want to disclose early in the process where we may be in breach. Usually this has to do with delivery and shipping compliance.

Selling multi-state license.2020-08-26T11:59:03+00:00

Unless there are Insurance Contracts and assistance through the transfer process, these licenses are not worth very much.

How are bed-types (ALF; SNF; Group Home) valued in LTC Pharmacy?2020-08-26T11:58:31+00:00

There is higher value in Skilled Nursing or Assisted Living Beds. Group home beds are difficult to sell and have a low value. Depending on the contracts and geography, we have seen values range from ______ to $5,000 per bed.

Change of Ownership (CHOW) process / Management Services agreement.2020-08-26T11:57:53+00:00

A Change of Ownership usually occurs when a Medicare provider has been purchased by another organization. The timeline varies between each state but more information can be found with your state’s Medicare office. In the scenario in which the current Medicare provider has not held the license for 3 years, a Management Services agreement will be put into place with the new buyer until the provider is eligible for a CHOW process.

PEPPER Report2020-08-26T11:57:09+00:00

A PEPPER report is Hospice specific report that analyzes any Medicare claims that may be within risk of improper Medicare payments. They are typically used for internal auditing but can often be a request during a due diligence period. PEPPER stands for Program for Evaluating Payment Patterns Electronic Report.

What are the multiples for Hospice?2020-08-26T11:56:45+00:00

There are variety of factors that can influence the valuation of a company. Two of the primary ways in which the market values Hospice companies are a price per census patient or on a multiple of their adjusted EBITDA (insert link to EBITDA), or true cash flow. The additional factors that can influence a valuation are geography, payor mix, demographics, accreditations, special licensure, service type, and census. For more information on the value of your Hospice business, please contact us for a complimentary valuation.

How does CAP risk effect value?2020-08-26T11:56:20+00:00

If there is a significant CAP risk within an operation, this will likely affect the transaction price or the breakdown of how the funds are dispersed within the purchase. Either those patients that are within risk of CAP issues will hold less value than the rest of the census or a certain portion of the transaction to be held-back in case CAP issues do come into the picture at a later date.

My nursing staff are independent contractors (1099), will this adversely affect my value?2020-08-26T11:52:24+00:00

Yes. This type of agency is considered a Registry. We have been unsuccessful in selling agencies who have a majority of contracted staff given the costs by the buyer to convert your employees into W-2. However, if you are considering a sale, we recommend that you convert your staff to W-2 employees prior to engaging the sale process. Assuming you are in compliance, this is probably a more profitable structure for you in general and allows more flexibility for your staff.

I own a franchise…is it sellable?2020-08-26T11:51:54+00:00

In our experience, franchises can only be sold if there is a clear opt out provision in your franchisor agreement. If you are interested in selling and would like to know your options, please have your franchisor agreement available when speaking with us.

What Due Diligence should I expect?2020-08-26T11:51:23+00:00

Due Diligence is can be very onerous. A buyer will want a clear picture of your company and services during the diligence process which will consist of Organizational, Regulatory, Clinical, Financial, and Legal diligence requests. We establish a secure data room to house the transfer of this data as well as act as deal managers, troubleshooting any issues that come up during the diligence process and moving the deal toward a successful close. (see Due Diligence template)

What are the multiples for Home Health?2020-08-26T11:50:50+00:00

There are variety of factors that can influence the valuation of a company. One of the primary ways in which the market values Home Health companies is on a multiple of their adjusted EBITDA (insert link to EBITDA), or true cash flow. The additional factors that can influence a valuation are geography, payor mix, demographics, accreditations, special licensure, service type, and census. For more information on the value of your Home Health business, please contact us for a complimentary valuation.

How does PDGM effect value?2020-08-26T11:50:09+00:00

In general, PDGM has delayed reimbursement and decreased profitability. A year-over-year analysis of you profit and loss (income statement) should accentuate where PDGM has reduced revenue and profit. The value of a company is usually tied to profitability. If this drops so will the value of you company.

I own a private pay home care (private duty) business and the majority of my staff are 1099 contractors. Will this affect my value.2020-08-26T11:49:34+00:00

Yes. This is a registry and we have not heard of any successful transactions of these types of agencies. They do cash flow well, but in order to sell you will need to convert caregiver staff to employees (W-2). Or accept a discounted price from the buyer who will need to make the conversion.

As my advisor, what is your biggest value add?2020-08-26T11:47:08+00:00

We are your ally throughout and help you manage the entire sales process. We advise you when things are progressing accordingly or when they are not. We are able to see common pitfalls before they arise and utilize specific strategies to negotiate the best offer possible. You would never go to court without an attorney, you should never sell your company without an experienced advisor. (see quotes and tombstones)

What is the Lower Middle Market?2020-08-26T11:46:39+00:00

The lower middle market is the lower end of the economy’s middle market with a key distinguisher being companies that generate revenues between $1 million to $80 million. It is counter intuitive, but smaller transactions on this spectrum tend to be more complicated. Our expertise is working with companies that fall within this range. It is vital that you have an advisor that understands how buyers negotiate and conduct these transactions.

How many agreements / contracts are involved in the transaction?2020-08-26T11:46:13+00:00

Depending on the commercial terms of the deal there may be as many as 3 separate contracts. There is always a PSA. If the seller is rolling over equity then there will be an operating agreement. If the seller is remaining in an advisory or management capacity then there will be an employment agreement. Keep in mind, that there can be other agreements within each of these, such as non-compete and certain disclosures.

Definitive Agreement – Purchase and Sale Agreement (PSA)?2020-08-26T11:45:52+00:00

The PSA is the definitive document, with detail on all aspects of the transaction.  This document is where the attorneys will do most of their work.  It will save time if the most sensitive provisions are negotiated ahead of this phase.  For instancenon-competerepresentations and warranties, indemnification cap, just to name a few.   

How Rollover Equity is Treated2020-08-26T11:44:58+00:00

If the seller is part of the future senior management, or would like to invest in the buyer/new company they can choose to Rollover Equity. This is a portion of the purchase price. Keep in mind that this will represent a higher portion of equity, because the buyer is also using debt to finance the acquisition. A seller rolling over equity usually will be in an executive position (ie CEO) and/or getting a seat on the Board. We also negotiate a role that entails operational and strategic decision-making, which is covered in the operating agreements.

What are Non-Compliance Disclosures?2020-08-26T11:44:32+00:00

In the healthcare industry it is impossible to remain in compliance with all regulation or contractual obligations. It is important to identify non-compliance early in the process and disclose to buyer. Usually this is first done in a conference call. It can also be detailed in within the Rep and Warranties of the LOI. Ultimately, these Disclosure schedules will be a larger portion of the Definitive Purchase Agreement.

Material Adverse Effects (MAEs)2020-08-26T11:44:06+00:00

If a buyer walks away from a deal it is usually due to something that is potentially, yet materially, harmful to the business. If a buyer litigates, citing a provision in the Purchase Agreement, there will have to be damages faced by the company to justify the litigation. For example, suing based on an ordinary representation and warranty item would need be due to how it adversely effects the business.

What are Reps and Warranties or Special Indemnities?2020-08-26T11:43:34+00:00

All Purchase Agreements have Representations and Warranties put forth by seller. If there is a breach the buyer will have certain financial remedies. There are Fundamental Reps and Warranties, like anything that is considered fraud. In this case, the buyer may be entitled to the entire purchase price to be reimbursed. This is highly unlikely. Standard Reps and Warranties are usually for non-compliance issues which may have a M.A.E. (Material Adverse Effect), such as a labor code that is not followed. When considering an offer, a buyer will normally reserve a percentage of the purchase price for a period of time to be a “Hold-back”. If there are any losses due to breach or reps and warranties, these monies are used. It is rare that buyers make a claim and sellers are not paid on Hold Back amount.

What other assistance will I have to retain during the process (attorney)?2020-08-26T11:42:59+00:00

In all cases, an attorney is required to solidify the purchase agreement, which is the binding document to closing the deal. In some cases, a financial consultant may be required to properly present your company’s financials. It is vital that you select the proper representatives in these categories. We can assist in this selection. It should be stressed that a transaction attorney, in particular, can make or break a deal.

What other assistance will I have to retain during the process (attorney)?2020-08-26T11:42:21+00:00

In all cases, an attorney is required to solidify the purchase agreement, which is the binding document to closing the deal. In some cases, a financial consultant may be required to properly present your company’s financials. It is vital that you select the proper representatives in these categories. We can assist in this selection. It should be stressed that a transaction attorney, in particular, can make or break a deal.

What is a QofE?2020-08-26T11:41:44+00:00

QofE stands for “Quality of Earnings” which is a process involving a CPA doing an audit of the financials. In many cases, our clients are doing cash accounting. The QofE wants to confirm that the accounting is accurate if converted to an accrual basis accounting. It typically takes 2-3 weeks to conduct. If the findings show that the company has accurate accounting, then we move to the next aspect of diligence. If the accounting is not accurate, falling short of assumptions, then the buyer may ask for an adjusted valuation.

What happens in due diligence?2020-08-26T11:41:12+00:00

Confirmatory Due diligence is typically a 2-4 month process. It can start with a formal quality of earnings (QofE) (link) or amplified financial vetting of your business. This is to ensure the financials we presented were accurately portrayed. Thereafter, a buyer will typically begin clinical, human resources, and legal diligence. Once the information presented is confirmed, the buyer will begin drafting the purchase agreement (PSA) (link). If the information is inaccurate, the buyer may want to adjust the commercial or legal terms of the agreement. All buyers spend time and money to establish confidence in what they are buying. Due Diligence is can be very onerous (attach Standard Due Diligence Request List). We establish a Data Room for sharing of information. The majority of the time between an LOI and a close is spent in this process. To ensure that security and keep the information organized intermediaries will utilize a Virtual Data Room (“VDR”). This is a secure storage tool, which is administrated by the seller’s representative. Only those parties who are formally invited will have access to the VDR.

What happens to my debt after close?2020-08-26T11:40:40+00:00

You as the seller are responsible for settling all debt on the business.

Working Capital and True Up2020-08-26T11:40:12+00:00

Working Capital is Short Term Assets less Short Term Liabilities (and Debt). Buyers want to keep your working capital. We do our best to avoid this and negotiate that the seller retain all or most of it. If net working capital is negotiated, we establish a figure based on what the company needs to float business for a short time. Post close, this working capital number may be higher or lower than initially calculated. Seller will keep the excess over the amount or pay the buyer for any shortfalls. This “True Up” usually happens 90 days after deal is funded.

What happens to my cash and AR after close?2020-08-26T11:39:46+00:00

Typically, you as a seller will retain cash and cash equivalents at closing. Working Capital, which includes AR less AP, is sometimes negotiated as a way for the buyer to acquire the company and maintain the normal course of business through the transition.

Am I paid in full at closing?2020-08-26T11:39:18+00:00

Typically, 90% of the total purchase price is paid in cash at closing. On average, 10% of the purchase price is withheld for a period typically spanning 12-18 months. It is kept there as a security against indemnification and reps & warranties (link).

What is a recapitalization?2020-08-26T11:38:54+00:00

Recapitalization is the process of changing a company’s debt to equity ratio, by either adding more equity to its capital to or adding more debt (known as a Debt Recap). It involves exchanging one form of financing for another. It can fund growth, provide liquidity, or buyout a partner.

Can I retain equity?2020-08-26T11:38:28+00:00

Yes, especially when your company generates in excess of $1 million of adjusted EBITDA. This is also known as a recapitalization. The equity you maintain with a new partner/owner is considered Rollover Equity. If debt is involved in the transaction, your rollover equity will yield you more ownership post close. (Show example of sources and uses table)

Can I continue working with the business after a sale?2020-08-26T11:36:22+00:00

If that is your desire, typically this can be negotiated into a transaction as a condition of closing. We can secure your position through the use of rollover equity, operational agreement, and employment agreement.

What is an asset v stock sale?2020-08-26T11:36:01+00:00

An asset sale is the sale of a company’s tangible and intangible assets. A key attribute of an asset sale is that balance sheet, including cash, AR, and debt, remain with the previous owner. A stock sale is the sale of a company’s shares from the existing shareholders. Stock sales usually allow for a smoother transition at close. However, the buyer must be willing to absorb the past liability of the seller’s company. When considering either of these sales, a buyer and seller may find operational, legal, and tax advantages with one over the other.

When can I expect to receive offers?2020-08-26T11:35:36+00:00

Offers typically materialize 4-5 weeks after starting the marketing process.

Blind Summary / Teaser – Confidentiality2020-08-26T11:35:12+00:00

A Blind summary is an overview of your company highlighting certain geographies, financial metrics, services, and purchase price. It is vague in order to maintain confidentiality and drive buyer interest in the asset. It is not until a unique NDA(link) is signed by a buyer, that we allow them the ability to review the CIM (link). Attach sample of Blind Summary

What is a CIM?2020-08-26T11:34:47+00:00

A CIM is a “Confidential Information Memorandum,” also known as you “Listing Book”, which highlights all aspects of your business. It is the foundational document used to market your company.

What type of buyers will look at my business?2020-08-26T11:34:22+00:00

Strategic: A Strategic buyer is a corporation or a larger organization providing similar services as a target asset. Strategic Buyers tend to move slowly towards LOI, but are much quicker to accomplish due diligence and purchase agreement than other buyer types. Strategic Companies care more about increasing market share than profitability. They will look to consolidate the general, marketing, and administrative aspects of your business in order to reduce overhead or fixed costs.

Financial: Focused on return of investment capital, the financial firm utilize an arbitrage model of buying, building, and generating a higher return on investment through a sale. Financial firms tend to be Private Equity firms (aka Financial Sponsors), however there are also search funds and family offices. A financial buyer will quickly put an offer together, but tend to be very slow when it comes to diligence and definitive agreements. These buyers are great for businesses generating over 2MM of EBITDA with sellers who would like to be part of the future growth of the company while still getting some cash for what they have built.

Independent: This is a term we created to define a large batch of buyers that don’t fit into the other categories. Independents are modestly-sized and act more like strategic buyers. They purchase entities as the primary business or vertically integrate the business into another healthcare platform. In some cases, these buyers are looking to transition from operations senior management into equity ownership. These are usually only buyers for smaller companies.

Should I review UCC Filings/Liens & Pending Litigation?2020-08-26T11:33:50+00:00

Yes! It is vital that you understand any encumbrances on the business. Prior to going to market, we suggest a lien search. Usually this is in the form of wholesale contracts and prior legal action. Buyers will review every aspect of your business before purchase. It makes sense to avoid surprises post LOI (link)…see Due Diligence (link)

How does a NDA protect me during a sale?2020-08-26T11:33:30+00:00

All buyers are screened and vetted prior to sending them a Non-Disclosure Agreement. This is a legal contract that the buyer will not take any action to adversely affect your company once they know your identity and certain company information. Once they sign, we still have to approve the release of the CIM (link to CIM). We have multiple layers in place to protect your intention to sell from your personnel and direct competitors.

Should anyone on my staff know I’m selling?2020-08-26T11:33:01+00:00

We do not encourage you to include your staff in a prospective sale process. The time to inform key staff is closer to the close of the transaction, when we are confident your company will sell. However, if you have key advisors you trust and think can be helpful in a process, it could be advantageous to involve them, especially during due diligence.

How is my confidentiality protected while you are selling my business?2020-08-26T11:32:28+00:00

We are highly sensitive about maintaining confidentiality throughout every phase of the sales process. This includes confidentiality from your employees, competitors, and governing bodies. We maintain the confidentiality of your listing when going to market through the use of a Blind Summary (LINK to BLIND SUMMARY) and NDA.

What is adj. EBITDA?2020-08-26T11:31:43+00:00

Adjusted EBITDA is your company’s true or normalized Net Profits after accounting for one-time, non-recurring, or personal expenses. A multiple of your trailing twelve months (TTM) adj. EBITDA will strongly determine the basis of your company’s value.

What is an addback?2020-08-26T11:29:19+00:00

See an AddBack Schedule Template

An addback is a non-recurring, one-time, or personal expense that is unrelated to operating the company. A lease for a personal vehicle is a common addback. In some cases, ownership may be paying themselves more than the position pays in the market. This could be adjusted on place on the addback schedule.

What is EBITDA?2020-08-26T11:28:27+00:00

EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization. It is a proxy for your company’s cash flow. It is a better measure of performance than profit because it removes all non-cash accounting expenses.

How will buyers value my company?2020-08-26T11:28:01+00:00

The core valuation of any business is based on a multiple of adj. EBITDA (link to adj. EBITDA answer). Your company may also be valued based on a percentage of revenue or some additional unit of measure such as price per census patient.

What information do I need to provide to get started on marketing my company?2020-08-26T11:27:27+00:00

See Video: 10 Ways to Prepare Company for Sale.

We will need the following:

  • Valuation questionnaire
  • Copy of the Company’s last filed Tax Return
  • Profit & Loss Statements and Balance Sheets from previous 3 years
  • A conversation regarding the Personal Expenses and Non-recurring costs related to the most recent set of financials
  • Detailed overview, description, and history of the Company. Including ownership structure and an org chart of the company personnel
  • Your Company Logo
What is an IOI?2020-08-26T11:26:40+00:00

An IOI is an “Indication of Interest”. It is a less formal way to submit an offer and is used to communicate a buyer’s ‘interest’ in working towards a LOI.

What is Exclusivity?2020-08-26T11:26:17+00:00

Exclusivity is an agreed upon period of time, typically spanning 60-90 days, where the seller agrees to ‘exclusively’ work on selling his/her company to a selected buyer. During this process, we refrain from marketing your business to other buyers.

What is an LOI? 2020-08-26T11:25:51+00:00

A LOI is a “Letter of Intent”. It captures the vital components of selling your business which include purchase price, exclusivity, working capital, timing to close, holdbacks, governing state of law, confidentiality, reps and warranties, and sometimes other topics.

What is a CHOW?2020-08-26T11:25:15+00:00

A CHOW is a “Change of Ownership” where the buyer is officially approved by the state, CMS, or governing body to legally take over your business.

When is the best time to sell my business?2020-08-26T11:24:53+00:00

The best time to sell your business is a few years from the inception of the company and ideally while it is growing. It is more likely to achieve a premium valuation if going to market during an upward trend. 

If I agree to sell my company with your firm what happens next?2020-08-26T11:24:17+00:00

We will send you a Fee Agreement (FA) with a preliminary valuation and engagement terms.  Regardless of if you proceed with a sale it is of great benefit to have this document for reference.  Once you sign the FA we begin a three phase M&A process:  Link to downloadable pitchdeck (or can we create a display on the web that covers this info?). 

How long will it take to sell my company?2020-08-26T11:23:41+00:00

The process of selling your company typically spans 4-6 months on average from marketing to close. It usually takes us 4-5 weeks to receive offers on your business. The due diligence process and CHOW (link to CHOW answer) can take up to 4 months.

How has the I/DD transactional market changed in recent years?2019-09-25T15:33:44+00:00

Not much. From a transactional standpoint, the market remains very consistent and active. I/DD service businesses continue to sell at a steady pace and the segment has become a major focus for our firm. We have an extremely robust network of national I/DD providers, who regularly look at our deal flow. Additionally, interest from Private Equity continues to get stronger, as financial investors look to deploy more capital into businesses with strong returns. I’ve had the privilege of working closely with a half dozen, or so, providers, and new relationships continue to form to this day.

Is this a good time to sell my I/DD business?2019-09-25T15:36:05+00:00

Given the number of transactions, the inventory for coveted I/DD assets has shrunk, which makes it a great time to sell. Strategic companies like ResCare (now BrightSpring), the Mentor Network (Civitas), and others alike are increasingly looking for viable businesses to acquire. I mentioned in my last response that Private Equity interest is strong, especially for opportunities of scale. Whether a small or mid-sized I/DD provider, nothing we’re seeing would point to a shift in this trend, specifically for those businesses that are financially stable, growing, and have a strong brand.

What are current I/DD Multiples? Who is buying I/DD businesses?2019-09-25T15:37:09+00:00

For companies we’ve sold, multiples range anywhere from 3x-6x adjusted net income/adjusted EBITDA. This includes I/DD Group Home, Foster Care, Adoption, Respite, Autism, Day Programs, and other I/DD specialty businesses. Valuations of I/DD service companies are based on a multiple of adjusted EBITDA and in some instances, as a percentage of revenue. Strategic companies usually pay more, but the private equity world has remained very competitive especially for platform opportunities. There are compelling differences between the two buyers, especially given the rollover equity component of PE deals.

There is also a growing demand for real estate that is licensed to accommodate consumers with developmental disabilities. For example, I/DD Group Homes are coveted by many National REITS which specifically focus on acquiring this type of facility. For the owner-operator, a sale-lease back is a great way to free up some cash flow and focus more on the consumer and operations versus their real estate.

What can I do to increase the value of my I/DD business?2019-09-25T15:37:46+00:00

With any business, growing top line and controlling costs is a sure way to drive valuation. This could mean expanding your provider services, growing beyond your current geography, or cutting costs as to where it won’t affect the consumer being cared for. Specific state programs and select contracts can also bring additional value to a business. Similarly, a business with an assortment of referral sources, a reputable brand, and a strong stable management will help drive value; although very difficult to translate those factors into dollars. These components should drive the financial health of a business, specifically revenue and profitability, which in turn will drive a company’s value.

Why do I need an M&A advisor?2019-09-25T15:38:33+00:00

The process of selling a business is a massive undertaking, especially when trying to maintain the day-to-day workload that goes into running a company. Whether it’s our firm or another, an experienced M&A advisor is integral to selling a company, especially during due diligence which is often a very complex and stressful time. I’ve come across too many advisors who feel sourcing a buyer is their main role. This couldn’t be further from the truth. Given the size of our network, which has been cultivated over the last 30 years, this is probably the easiest part of the process for us. Preparing a company for sale prior to going to market, negotiating offers/driving multi offers, and staying proactive throughout due diligence are the most pivotal phases of selling a company. This is really where we thrive and is our greatest value add. We regularly promote our ability to stay ahead of potential issues, which always arise, and offer guidance based on experience throughout a sometimes-lengthy due diligence process. A great advisor should also have keen sense of negotiating and should be able to drive value through various strategies. In most deals, we’re able to cover our success fee by doing so.

Is this a good time to sell my Specialty Pharmacy (“SP”)?2019-05-13T22:11:40+00:00

We instruct owners and operators that they have to make this decision. Here is what we know with the independent SP’s we have represented through a sale:

  • The competitive landscape is very treacherous. The largest pharmacies own the majority of the market share and they don’t want smaller independents getting in their way. Moreover, the large hospital networks, GPOs, and other health systems/groups are establishing specialty pharmacies. They are keeping pharmacy patients who would have traditionally gone to independents.
  • Payors, who are affiliates of the large competitors are reducing access and/or reimbursements. This is squeezing margins. It also creates a stress on the business with audit notices and claims that certain patients are in breach of the payor contracts. In most cases, the independent pharmacy thinks they are in compliance then they are hit with some bogus claim which threatens their contract altogether.
  • And is if that were not enough, PBMs and DIR fees associated with Part D plans are overburdening the administration/billing expenses and reducing profits even further. This is what we hear from operators all the time: “I just want to be a pharmacist and business owner, but the PBMs are making it impossible to make money. I can’t ever focus on what I loved about this business in the first place.” If this is you, it may be time to sell.
Are Specialty Pharmacy valuations decreasing?2019-05-13T22:11:50+00:00

Yes. With the continued consolidation, the top 4 specialty pharmacies have over 70% of the revenue market share. This makes it a buyers market. PBMs, most of whom are owned by the aforementioned large specialty pharmacies, continue to put a strain on the cash flow of the independent operators. There is also tremendous uncertainty with reimbursements on drugs. Essentially how are drugs priced at the point of sale. All of this has lead to declining valuations. Large Strategic buyer may spend 20% of revenue, while a Financial Buyer may pay between 5 – 6X. This is down from 25% of revenue and between 6 – 7X just in 2017 (based on internal transactional comp data)

Who will buy my specialty pharmacy?2019-05-13T22:12:05+00:00

Strategic: Of the big 4 (CVS; ESP; Walgreens; OptumRx) we only see CVS putting in competitive bids with independent sellers less than 100MM in revenue. Walgreens is making moves in an effort to keep up with CVS, but they are no where near as effective. We have not worked with the other two, but may surface with the right opportunity.

Financial: Assuming the pharmacy is 1) differentiated (ie has a market niche) with service and/or drug therapy AND 2) it has over 3MM in EBITDA it should be of interest to a number of financial sponsors. We highly recommend that you have an M&A advisor to not only tap into the financial buyer world, but to understand how they run their process.

How can I improve the value of my Specialty Pharmacy?2019-05-13T20:59:38+00:00

We instruct owners and operators that they have to make this decision. Here is what we know with the independent SP’s we have represented through a sale:

  • The competitive landscape is very treacherous. The largest pharmacies own the majority of the market share and they don’t want smaller independents getting in their way. Moreover, the large hospital networks, GPOs, and other health systems/groups are establishing specialty pharmacies. They are keeping pharmacy patients who would have traditionally gone to independents.
  • Payors, who are affiliates of the large competitors are reducing access and/or reimbursements. This is squeezing margins. It also creates a stress on the business with audit notices and claims that certain patients are in breach of the payor contracts. In most cases, the independent pharmacy thinks they are in compliance then they are hit with some bogus claim which threatens their contract altogether.
  • And is if that were not enough, PBMs and DIR fees associated with Part D plans are overburdening the administration/billing expenses and reducing profits even further. This is what we hear from operators all the time: “I just want to be a pharmacist and business owner, but the PBMs are making it impossible to make money. I can’t ever focus on what I loved about this business in the first place.” If this is you, it may be time to sell.
What types of Financial Buyers are there for Specialty Pharmacies?2019-05-23T00:10:47+00:00

Traditional Private Equity. Be ready for the treaded Quality of Earnings and an over engineered acquisition agreement.

Family Office.  Patient capital.  Long holds.  Not much industry expertise.

Independent Sponsor or Fundless Sponsor.  Will get capital to acquire once the deal is secured.  Will probably have a principal who will come in to learn the business as CEO in residence.

Certain M&A Healthcare Services Immune to Coronavirus…Here is Our Real Data

By |April 21st, 2020|

Team M+A is an established healthcare Merger and Acquisition advisory group backed by the 30-year history of American HealthCare Capital. With 2019 now behind us, we wanted to take a moment to thank you for being a part of our network and share a list of our (15) closed transactions that took place in 2019.

Home Health & Hospice Acquisition Trends From Large Cap to Lower Middle Market

By |October 7th, 2019|

The most notable challenge with valuing private, lower middle market, deals is the lack of accessibility to transaction analysis. As a firm, we do roughly 25 deals a year in Healthcare (two-thirds (2/3) are in the Home Health & Hospice category), which gives us a wealth of comparative data to analyze.

I/DD Q&A

By |September 9th, 2019|

We sat down with Mike to better understand the current market for Behavioral Health and I/DD transactions as they are increasingly, as Mike stated, "the most coveted assets currently in the healthcare M&A space."

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