Mergers & Acquisitions: The Value of Early Preparation

As you might expect, our agency networks with lots of people in the financial world, including investment bankers and private equity firms.

To capture today’s M&A trends and insights, I interviewed Andre Ulloa, a Partner and Executive Advisor at M&A Healthcare Advisors (MAHA), a boutique advisory firm and investment bank.

Our podcast interview covered a lot of ground, including the basics—like the differences between finders, business brokers, advisors, and investment banks.

Most importantly, however, Andre provides eight tips on how to prepare healthcare businesses for merger and acquisition success. The ideas we discussed apply to many kinds of healthcare businesses, including multilocation healthcare practices, SaaS, telehealth, device, life sciences and more.

Inside Investment Banking: Key Insights

“Over the last 18 months, transactional activity has reduced tremendously because the cost of capital has gone up. That means the banks just aren’t lending like they used to. Couple that with the closure of regional banks across the country, and buyers are left with lower-quality, amortized loans with higher interest rates from private lenders. At some point, the bottom is going to fall out of that,” shares Andre.

So, how can healthcare business owners optimize their business structure and financial health to attract top offers from strategic investors or private equity?

8 Tips on How to Prepare for M&A Success

Investors want to acquire businesses that are well-structured, financially sound, and primed for growth, ensuring smooth integration and long-term profitability.

According to Andre, here are eight ways to prepare:

1. Get financials in order: Ensure accuracy with accrual-based accounting.
2. Conduct a risk assessment: Identify and address reimbursement and other financial risks.
3. Detail clinical costs: Provide a clear breakdown of clinical expenses and operations.
4. Detail labor costs: Outline all personnel-related costs and operational details.
5. Review legal and compliance issues: Ensure all legal and regulatory matters are resolved.
6. Enhance practice value: Optimize operational efficiencies, revenue cycle management, and patient satisfaction.
7. Prepare for due diligence: Organize all necessary documentation and records for potential buyers.
8. Consult with experts: Engage financial advisors, legal experts, and investment brokers for expert guidance and support.

Andre sums it up perfectly, “When you’re preparing to sell your business, you want your valuation to reflect peak efficiency and minimal risk. That way, you’re more likely to get top dollar for your life’s work.”

Business owners can leverage these preparation strategies as a checklist to identify and evaluate high-quality practices for acquisition.

The Best Move to Make Now to Ensure Future Success

“First and foremost, employ, support, and cultivate a high-quality management team and experienced professionals that understand the fundamentals of the business,” suggests Andre.

Whether you are planning to sell your business in five, ten, fifteen, or more years, developing robust business systems now will support your M&A strategy and help you achieve your long-term goals.

Building a business that you enjoy is deeply rewarding. But achieving long-term success requires dedication, passion, and growth. In fact, many of our agency’s clients are interested in growing their business through marketing to increase its value upon its ultimate sale.

6 Reasons to Partner with a Licensed Investment Bank

At the beginning of our discussion, I asked Andre to provide an Investment Banking 101 primer, including some convincing reasons you’ll want to partner with a licensed investment banker.

Partnering with a licensed and reputable investment bank offers several key advantages, including:

1. Expert Guidance
   They bring specialized knowledge and experience to complex financial transactions.
2. Compliance Assurance
   They adhere to strict regulations, reducing legal and financial risks.
3. Effective Risk Management
   They identify and mitigate risks, protecting your interests.
4. Navigating Gray Areas
   They help manage uncertainties in regulatory gray zones, ensuring compliance and strategic handling.
5. Enhanced Credibility
   They offer legitimacy and trustworthiness in the financial markets.
6. Valuable Resources
   They provide access to extensive networks and market insights, opening doors to new opportunities.

Andre adds, “When you think about healthcare and the amount of regulatory oversight that’s occurred in the last two years, it can be near impossible to protect yourself without a great defense on your side. An experienced team can structure deals in your best interest.”

For healthcare organizations expanding through mergers and acquisitions, working with a licensed, experienced, and reputable investment bank can also help them avoid common pitfalls amid today’s intense regulatory oversight.

Are Investment Bankers Different from Business Brokers?

Understanding the key players in the financial markets is crucial for healthcare organizations looking to engage in mergers and acquisitions.

Here’s a breakdown of the key roles:

• Investment Bankers: Manage larger, complex deals with full-service offerings. The smallest transactions most investment bankers will handle gross at least $10 million in revenue, with annual EBITDA exceeding $2 million.
• Business Brokers: Handle smaller business transactions. They are usually licensed real estate agents, so they often handle the real estate as well.
• Commercial Real Estate Brokers: Focus on industrial, retail, investment, and office real estate.
• Finders: Connect buyers and sellers.
• Consultants: Provide strategic guidance and are deeply involved in transactions.

Andre tells us it is common for business owners to collaborate with a mix of advisors, including investment bankers, attorneys, accountants, consultants, and commercial real estate brokers, to navigate the sale of their practice and office space. This team approach ensures their business and property transactions are handled smoothly and focused on maximizing value and minimizing complexity.

In Andre’s words, “We help the lower-middle market, which often includes small to medium-sized private practices, transform their life’s work into financial success.”

Special Thanks to Andre Ulloa

I want to thank Andre again for sharing his time, experience, and expertise with us. I look forward to speaking to him again (in many, many years) when I’m ready to sell my business to the highest bidder.

I hope this summary has provided you with new and valuable insights into the complex world of investment banking. If you’d like to learn more about M&A Healthcare Advisors or their service offerings, I encourage you to visit their website.

For more in-depth coverage of the intricacies of mergers and acquisitions in healthcare, I highly recommend listening to our podcast in its entirety.

We invite you to subscribe to our blog and connect with us on LinkedIn at Stewart Gandolf and Healthcare Success.