Even in a sellers’ market, there are certain steps that sellers can take in advance of and during the sale process that will help the sale process run smoothly and help sellers better achieve their desired end result, according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 21 and 22.
Experts included William D. Spizman, CPA, Partner and Great Lake Market Leader – Transactions Advisory Services at RSM US LLP, Michael Ory, Managing Director – Healthcare Services at Raymond James Investment Banking, Steve Reynolds, Principal at Trivest and Brian Doyle, Managing Director – Healthcare at William Blair.
Here are five key points from the panel discussion.
1. Early 2018 continues to be a sellers’ market. Strong equity and debt markets combined with both strategic and financial buyers that successfully raised or had cash on hand resulted in healthy competition among buyers and a great dynamic for sellers in 2017. Although the debt and equity markets are experiencing increased volatility so far in 2018, this year looks like another strong year for sellers. The change in tax policy is also likely to stimulate investment and fuel the economy. Those who have been contemplating a sale should consider the seller favorable market conditions and determine if 2018 is the right time.
2. Preparation prior to the sale process is key to running a successful sale. Sellers and their advisors should take steps to prepare for the sale process prior to issuing marketing materials to potential buyers. These steps might include organizing documents and creating a data room for purposes of buyer diligence, analyzing the businesses’ past performance and preparing to address any problems or outliers in performance and, in a highly regulated industry such as healthcare, engaging a third party to confirm regulatory compliance prior to the process. Even before advisors are involved, a company that is contemplating a sale should collect meaningful data in order to measure the success of the business. The company should track certain metrics related to the business in addition to the usual accounting metrics to display the company’s past performance and growth.
3. The sale process will differ for each seller and is constantly evolving. Generally the sale process consists of four steps: (i) preparation of business and marketing materials, (ii) issuance of marketing materials and first round bids, (iii) meetings with management and financial diligence by potential buyers, followed by second round bids and (iv) the final phase, including completion of diligence and finalization of purchase documents. Although negotiating with multiple buyers through step (iv) increases the likelihood of closing on a sale and could potentially increase the final price, each seller should consider the needs of the seller’s business and the time their team has to spend on the transaction. For some sellers, it makes more sense to commit to exclusivity with one potential buyer in order to avoid having to run multiple separate sale processes, while others have the manpower to maintain the operations of the business while running multiple sale processes, potentially creating competition among buyers and increasing the chance of a successful deal at the end of stage (iv).
4. Sellers and buyers should consider things other than the purchase price when making a decision about a sale. A founder selling his or her business should consider what his or her ideal role in the company will be following the sale. Oftentimes founders plan to retire or move on to another venture following a sale, but generally a buyer expects the founder to stay with the company for a period of time post-closing, as the buyer might view the founder as one of the most valuable assets of the company. Sellers should also consider how the seller’s company fits in with potential buyers’ overall business and potential buyers’ level of expertise in the seller’s industry. Sellers should ask these questions of potential buyers early on in the sale process, as they may be just as important as the financial terms of the transaction.
5. Buyers are increasingly focused on data, specifically third-party verified data. Buyers, particularly financial buyers, are increasingly focused on reviewing, analyzing and understanding verified, third party data during the sales process to value the company and make decisions. In addition to audited financials and business metrics monitored by the seller, as mentioned above, sellers should consider obtaining a quality of earnings report and/ or a market promoter score from a third party – which are seen by many financial buyers as extremely valuable diligence materials.