What Behavioral Health Owners Should Understand Before Comparing Offers
- Jun 23
- 6 min read
By Kevin Taggart, CM&AP, Managing Partner, Mertz Taggart
At a Glance When buyers make offers on a behavioral health business, most owners look first at the multiple. That’s understandable, but it can be misleading. A strong offer depends on more than the headline number. Owners should look closely at how much cash they’ll receive at closing, how much of the price is tied to future conditions, and whether the buyer is truly able to close at the value presented. |
If you own a strong behavioral health business, buyers are reaching out. Private equity firms, larger operators, and investor groups building platforms in the space are all actively looking, and it is not unusual for more than one to reach out in the same week.
At some point, those conversations may turn into real offers.
When they do, it’s natural to focus on the multiple. A multiple is simply how many times your normalized cash flow (or Adjusted EBITDA) a buyer is willing to pay. If your business earns $2 million a year and a buyer offers eight times earnings, that suggests a $16 million deal.
That shorthand is useful, but it can also be misleading. A multiple doesn’t tell you how much money you’ll receive at close, how much risk is built into the offer, or whether the buyer can execute.
Why the multiple is only part of the picture
A multiple only matters in relation to the earnings figure behind it.
Most buyers start with adjusted EBITDA, which is a measure of normalized earnings before interest, taxes, depreciation, and amortization. But not every buyer calculates adjusted EBITDA the same way. One buyer may use last year’s results. Another may use the most recent few months and annualize them. A third may factor in synergies.
That means the same multiple can produce very different results. Two offers that look far apart on paper may be much closer in actual dollars. Two offers that look similar may not be similar at all.
For example, one buyer may offer seven times AEBITDA and another may offer five times AEBITDA. At first glance, seven sounds better. But if the seven-times offer is based on last year’s lower earnings, and paid out over time, while the five-times offer is based on the business’s current performance, and paid in cash at closing, the lower multiple may actually produce more value.
Before comparing offers, there are many questions worth asking each buyer. Two of the most important:
How are you determining adjusted EBITDA?
How is the purchase price paid out?
Then compare the dollars, not just the multiple.
What reaches your account matters more than the headline number
The number a buyer quotes is usually the total value of the deal. It is not necessarily the amount you take home at closing, or ever.
Several items can reduce the cash you receive at closing. Business debt is typically paid off first. There will likely be a working capital target and subsequent adjustment to account for the cash and short-term assets needed to keep the business operating. A portion of the purchase price is always held in escrow for a period after closing to cover any liabilities that arise from the seller's period of ownership. Other forms of consideration that affect your net proceeds include a seller note or an earnout.
Once those items are factored in, two offers with the same headline value can produce very different outcomes.
A slightly lower offer with more cash at closing, a cleaner working capital adjustment, and no earnout may be stronger than a higher offer with more conditions attached. The number worth comparing is not only the purchase price. It is what you are likely to receive, when you are likely to receive it, and how much uncertainty sits between the offer and the final outcome.
Not every dollar in an offer is guaranteed
Every offer includes some combination of guaranteed money and conditional money. Owners should separate the two before deciding which offer is truly stronger.
Cash paid at closing is the most certain part of the deal. Other forms of consideration usually depend on what happens later.
One common example is rollover equity. Instead of taking the entire purchase price in cash, you reinvest part of your proceeds into the buyer’s larger company and become a part owner. This can be a meaningful opportunity, but its value depends heavily on the buyer. If the buyer is well-run and continues to grow, the rollover may become worth significantly more than the cash you reinvested. If the buyer struggles, that equity may be worth far less.(maybe add, “even worthless”?)
The percentage matters, but the company you are rolling into matters just as much.
A seller note is another example. This means the buyer pays part of the purchase price over time, with interest, effectively making you a lender until the note is paid off. An earnout goes a step further, tying part of the purchase price to future performance targets.
We generally push back on earnouts and try to keep them out of the deal. When they cannot be avoided, owners should treat that portion of the offer as conditional, not guaranteed.
A simple way to compare offers is to start with the guaranteed money. Then look at the conditional pieces separately and ask what has to happen for that money to be paid, and what are the chances of it happening? This will usually be in the form of a range.
Who is behind the offer affects whether it closes
A strong offer only matters if the buyer can complete the transaction.
Not every buyer has capital ready. Some buyers, including many larger private equity firms, have committed capital and can fund a transaction directly. Others raise capital deal by deal after agreeing to buy a business. These buyers, often independent sponsors or search funds, may be credible, but the funding process adds time and risk.
That difference matters.
A buyer who still needs to raise the money may take longer to close. In some cases, the capital may not come together at all. A slightly higher offer from a buyer still raising funds is not the same as a slightly lower offer from a buyer with committed capital, an industry thesis, and a clear path to closing.
In a competitive process, certainty has value. The best offer is not always the highest number. It is the offer that gives the owner the strongest combination of value, terms, buyer fit, and likelihood of closing.
Every transaction will have challenges before closing. Understanding who the buyer is, how they plan to fund the deal, and how they behave in the process is essential to separating a real offer from a number on paper.
Why the offer you accept can still change before closing
The offer you accept is not always the number you close on.
After both sides sign a letter of intent, the buyer reviews the business in detail. That process can confirm their valuation assumptions, but it can also cause the buyer to revise the offer.
One of the most important parts of that review is the quality of earnings process. A quality of earnings review examines whether the company’s reported earnings are accurate, sustainable, and supported by the financial records.
There is judgment involved, especially around add-backs. Add-backs are expenses a seller adds back to profit because they are not expected to continue after the sale. Different reviewers may reach different conclusions about which add-backs are valid and how earnings should be measured.
That is why a strong offer is not only about the number presented upfront. It’s also about how well that number can hold up once the buyer performs their quality of earnings.
Clean financials, strong compliance, clear documentation, and a strong management team all help protect value. Those strengths are usually built long before an offer arrives. They give buyers confidence and reduce the chances of a late-stage price reduction.
When comparing offers, owners should consider how each offer is likely to hold up during diligence. A slightly lower offer that survives the review may be better than a higher offer that gets retraded before closing.
Key Takeaways
A multiple is only a starting point. It does not tell you what you’ll actually receive.
Compare offers based on actual dollars, cash at closing, timing, and certainty.
Separate guaranteed money from conditional money, including rollover equity, seller notes, and earnouts.
If rollover equity is part of the offer, evaluate the buyer carefully. The company you join matters as much as the percentage you receive.
A buyer with committed capital is generally more likely to close than one still raising money.
The offer you accept can change during diligence, so clean financials and strong documentation help protect value.
The strongest offer is usually the one that balances price, structure, buyer fit, and certainty to close.
Comparing offers is difficult to do on your own, especially when each buyer presents value in a different way. It is also one of the most important parts of a well-run sale process.
Mertz Taggart is a healthcare M&A advisory firm that represents behavioral health owners through the sale of their businesses. We help owners look beyond the headline number, understand the real value and risk in each offer, and negotiate from a stronger position through a disciplined, competitive process.
If you are weighing an offer now, or expect to receive one soon, it’s worth having a confidential conversation before you respond.
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