FAQs2019-08-01T14:46:00+00:00

FAQs

Frequently Asked Questions from Team M+A of American HealthCare Capital

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Home Health Frequently Asked Questions

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.

Contact us to learn more about current opportunities.

Contact TEAM M+a of American Healthcare Capital