Home health, home care and hospice agency owners are inundated today with “offers'' to buy their agency. We frequently hear from owners that multiple buyers have approached them trying to engage in substantive talks about an acquisition. Oftentimes, they even say that the buyer has talked about a price with them. A buyer who approaches you with an immediate offer doesn’t really know anything about your business. If they tell you they are paying a “multiple of X '' or paid “Y” for an agency “just like yours,” you should be skeptical. Unfortunately, what agency owners don’t know is that unsolicited offers are really just an attempt to get a foot in the door. How could they know any significant details about your agency upon which to base an offer? How are they comparing your agency to others?
You may find yourself curious about the offer and value of your company itself. You may even be considering selling your home care agency or hospice or taking investment into your business and growing it. These unsolicited offers can be valuable—as long as you know how to respond.
You would sell if the right offer came along:
Simply put, the right offer is not going to come along out of the blue. Buyers who say they want to buy your agency are usually looking for a deal (or maybe even a steal). They know you’re not talking with multiple buyers and that you haven’t put together a comprehensive analysis of the M&A marketplace, including the value of your agency. They know you’re not represented by anyone who understands the market or the sale process.
Waiting for the perfect opportunity to come along is not an exit strategy we advise. Knowing what your agency’s value is, what is happening in the marketplace, and preparing for a sale are key in preparing yourself and your agency for the right opportunity, and it’s never too early to start planning your exit strategy.
If you are considering a sale - now or in future:
1. Prepare
It’s important to carefully consider your next step, and this often means taking time to collect all necessary information.
Before responding:
Review their LinkedIn profile and/or company website.
If it is in fact a buyer that has reached out to you, and not a broker or M&A firm, research whether the company has made previous home care, hospice or home health acquisitions. If the buyer’s identity is intentionally vague, be cautious in proceeding. A legitimate broker or banker who claims to have a buyer interested in your agency will be happy to share the buyer’s name in the first communication, and that the buyer is paying their fee. It’s not unusual for less-than-savory brokers to initially claim to have a buyer, only to then sell themselves as sell-side representatives.
Evaluate how much bandwidth you have for the next 3-6 months to support transaction activity. Consider enlisting/incentivizing a key employee, confidentially, to help you with the transaction. This is not something you will need to do immediately, but identifying this individual may help you further down the road.
When you do respond:
Get some preliminary information on the buyer or investor, including:
How do they plan to finance the transaction? Do they have cash in the bank, a credit line, or an established fund? If so, how much? A professional buyer or investor will not hesitate to share this information with you.
Why is your company interesting to them? How does it fit into their acquisition or investment strategy?
Tell them you will want to engage an advisor and will get back to them. A credible buyer or investor will not be deterred by the concept of having an advisor helping you in the process. In fact, most of them appreciate having a professional intermediary who can set the proper expectations with sellers.
2. Do as the pros do
Private equity groups make their money buying and selling companies. They will buy a “platform”, then add several “add-on” acquisitions with the intent of selling the entire entity at a much, much higher price than they invested in the companies along the way. In other words, they are professionals at selling companies for the maximum amount, and under the best possible terms. They leave nothing to chance when it comes to selling their portfolio companies.
Rarely will a private equity group engage with just one buyer when it comes time for them to sell. They will most likely hire an investment bank or M&A firm to run a competitive process with a pre-defined group of qualified buyers and investors. Private equity believes this is the only way they can ensure their investors that they were able to negotiate the most favorable transaction with their ideal buyer…the buyer that wanted the company the most.
Similarly, it’s in your best interest to bring multiple buyers to the table. It’s easy to want to negotiate the first offer, especially if it appears compelling. But, as with any deal, the more buyer/investor competition there is for your agency, the better the conditions are for your ideal transaction. That is, maximum value, under the best terms, without renegotiating.
When potential buyers are aware there is competition to acquire your agency, they are far more likely to come to you with their best (or near-best) offer, and much less likely to drag out negotiations and run the risk of losing the deal to another buyer. Multiple offers from competitive buyers is the best leverage for the seller in every aspect.
There are many factors to consider:
Who to include in your potential buyer or investor universe. Who are your “A-list” buyers, and how do you reach out to them confidentially?
Knowing how to show your business in the most positive, but credible light to those A-list buyers.
How you will compare and negotiate multiple offers.
Knowing what is considered “market” (vs. “fair”) for both value and terms.
Keeping the process confidential. Having an employee, referral source or competitor find out you are considering a sale can certainly disrupt your business…and the sale itself.
3. Consider enlisting the services of a healthcare M&A advisory firm
This process can be overwhelming without a team of experts by your side. One of the main benefits of using the services of a healthcare mergers & acquisition firm is that they allow you to focus on what you do best — running your home care business, while your representatives use their know-how to maximize your value and get to the closing table…with few surprises.
When you engage a professional M&A firm, they consider the bigger picture while handling all the small details you may not have considered, including:
Curating a proper “A-list” buyer and investor list. A-list buyers meet three criteria:
They have plenty of financial resources to complete your transaction, including sufficient cash;
They know the care-at-home industry. Strategic buyers won’t be an issue here, but if you’re considering engaging with a financial buyer/investor, make sure they are well-educated on the industry before engaging as you don’t want to educate them as they work through the acquisition process.
They have sufficient transaction experience. In this case, the financial buyers won’t usually be a concern, but some of the strategic buyers may lack resources to complete a transaction in a timely manner. Most A-list strategic buyers have development teams dedicated to M&A.
Taking the time-intensive tasks off your hands such as preparing and updating the financial data book and Confidential Information Memorandum (CIM).
Maximizing the value of your agency by running a competitive bid process
Ensuring deal certainty by addressing all potential roadblocks early in the process.
Handling multiple stakeholders in the process, from lawyers to investment bankers and accountants.
Receiving an email from a buyer interested in purchasing your agency can be both flattering and overwhelming. At Mertz Taggart, we pride ourselves on being present for, and guiding our clients through, the entire M&A sale process.
80-95% of most owners’ net worth is tied up in their businesses. Handling the sale like “the pros do it” is paramount to ensuring your ideal transaction. The best way to ensure that is by hiring an accomplished, respected, healthcare mergers and acquisitions firm.
It’s never too early to start planning your exit. And the best way to start is by understanding the value of your home health, home care or hospice.
If you are interested in a confidential, complimentary valuation, please contact us.