How has the I/DD transactional market changed in recent years?
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?
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?
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?
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?
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.