Addressing Urgent Care Red Flags Before They Become Deal-Killers

Urgent Care Red Flags Check ListOver the last two weeks, The Ambulatory M&A Advisor interviewed some of the leading urgent care investors in a two-part series to learn about 10 urgent care red flags. We’re now featuring a two-part series on how to address these urgent care red flags before they become deal-killers.

The red flags featured in Part 1 included: unsophisticated legal and financial advisors, undesirable locations with low patient volume, regulatory action, cultural disconnects and poor management and staff. Fortunately, many of these red flags can be addressed prior to going to market with your urgent care business. Sellers that are prepared, organized and transparent will have a smoother transaction process. Blayne Rush, urgent care M&A broker and publisher of The Ambulatory M&A Advisor offers solutions to sellers looking to mitigate their red flags and put their best foot forward when entering a transaction.

Urgent Care Red Flags CheckEstablish a Team of Competent Advisors

Choosing the right investment bankers is one of the most important decisions you will make in enhancing the value of your company. An urgent care M&A broker with deep urgent care knowledge, a strong reputation, expertise and transactional experience can educate and prepare you and your urgent care business for every aspect of the sales process. An investment banker/M&A broker can manage the transaction from the preparation stage to the closing stage.

“Urgent care transactions die 200 times between the letter of intent and closing,” Rush says. “An investment banker with the experience and skill to anticipate and address the issues before they come up, and when they come up, is well worth the money.”

Selling an urgent care center takes a team approach. CPAs, healthcare transaction lawyers, estate planners and healthcare valuators are a few of the individuals a seller might need to work with, or at least understand their roles and know when to call on them. Rush says that it’s important to make sure that the advisors you hire have significant healthcare transaction experience.

“Healthcare transactions involve a different skill set and knowledge base than regular business transactions,” Rush says. “You’ll want someone that specializes in your marketplace, understands the marketplace from a national viewpoint and understands the weeds of urgent care. If you end up with someone who isn’t familiar with urgent care, they won’t be able to pull off the tougher transactions.”

To find healthcare transaction lawyers and/or healthcare valuators that specialize in healthcare transactions, visit our Healthcare Transaction Lawyer website, our Healthcare Valuators website or contact Blayne Rush.

Urgent Care Red Flags CheckPruning Centers in an Undesirable Location

Typically speaking, there’s no such thing as a ‘good’ or ‘bad’ center; it’s about good and bad matches.

“Right now, there is no national buyer willing to buy a center in any location, in any state,” Rush says. “There are buyers that focus in certain primary, secondary or rural markets.”

Some buyers will also stake out a geographic area to focus on. For example, a buyer may decide that they are only looking to acquire centers in a metropolitan area of Texas, or a rural area in Oklahoma. Because each buyer will be looking at a different geography, a center’s location could be ‘good’ or ‘bad’ depending on what the buyer wants. If you’re not having luck with a particular buyer, find a different one that is looking to make in acquisition in your geographic market.

In addition, if the center itself is lacking in physical appearance, Rush says to make an effort to spruce up the place before buyers come and visit.

“All of the buyers are going to view the facility and look for a retail-type culture,” Rush says. “You want buyers to walk up to your center and say, ‘this is a great looking place! I’d love to be treated here!’”

Rush says there are several easy fixes to sprucing up the physical space.

“Put a fresh coat of paint on the walls, clean up the landscaping, power wash the sidewalks, shampoo the carpets, shine the floors, clean the windows,” Rush says. “It doesn’t take much effort to do this, and it will show potential buyers that you have the place under control.”

Rush says it’s also important to make sure that your staff is happy and comfortable.

“Potential buyers can walk in as a secret shopper and pretend to be a patient to see what’s happening and how you operate on a day-to-day basis,” Rush warns. “If your front staff is not giving off a good impression, that can negatively impact you.”

Urgent Care Red Flags CheckBe Transparent About Any Regulatory Action

Urgent care is a complex industry. It has evolved from treating and taking care of patients into a full-fledged business, and it’s not uncommon to have some sort of hiccup somewhere if you’ve been in the business for a long time. Rush says that buyers will look at how fixable those hiccups are, and if sellers are being transparent about them.

“If there’s a coding audit that creates a problem, buyers need to know that they can trust the seller,” Rush says. “By being transparent about what’s going on, you can build that trust. If you try to hide information, then it will push buyers away.”

Rush says that if an issue is fixable, then buyers will take that into consideration and calculate that into their risk profile of the center.

“They might pay a little bit less, but as long as it’s an administrative issue, it shouldn’t be too large of a hiccup,” Rush says. If a hiccup is too big to tackle head on, a buyer might suggest that the seller make the efforts to fix it, and then contact the buyer once it’s done.

This is why it’s important to thoroughly prep your center prior to going to market. Time is a deal-killer, so if you take the time upfront to correct issues, as well as have a competent M&A broker on your team, you can be more prepared and save yourself a lot of frustration, and time, down the road.

Good organizational skills and transparency about any issues can save time, and can help a buyer see you in a more positive light.

“If you take care of your issues and disclose any information about regulatory action upfront, buyers will be more attracted to you,” Rush says.

Urgent Care Red Flags CheckMake Sure That Clinical Cultures Will Mesh

Sometimes buyers and sellers will attempt to bring centers together that just aren’t a good cultural fit for one another. Rush says to look at occupational medicine and urgent care as an example.

“I’ve seen larger companies try to marry occupational medicine and urgent care, and it has the possibility of not being successful if the parties do not understand the cultural challenges, and are not prepared to handle it,” Rush says.

Staff trained in occupational medicine usually have different priorities than staff trained in urgent care. Occupational medicine clinics aren’t as retail-oriented as urgent care centers, so staff at both centers may have a hard time re-adjusting to a new atmosphere after a purchase.

Rush says that there are other cultural disconnects between ‘small medicine’ and ‘large medicine.’

“Some of the providers could have a negative connotation about corporate medicine – meaning the large companies that come in and buy,” Rush says.

In order to help mitigate cultural clashes, Rush says communication is key.

“You have to over-communicate, prepare people upfront and allow employees to get to know the buyers if they have a different culture,” Rush says. “It’s more of an art than a science. Introduce employees to the new culture, and if any issues come up, recognize those issues and do things to make people feel more comfortable.”

Urgent Care Red Flags CheckHave a Strong Management Team and Right-Size Your Staff

If you’re a platform company, and you have the opportunity to sell to a financial sponsor, they will want to know that you have a solid team that they can invest in. This is especially important if the buyer is already managing 50 or 100 centers, but doesn’t have a presence in your local market yet.

“Buyers don’t want to have to send corporate people out there every week to manage your center,” Rush says. “They want you to already have an office manager, administrative manager, etc. to handle the local issues on the phone with corporate.”

Rush says that it costs buyers a significant amount of money to send a corporate leadership team out to your center on a consistent basis. If a buyer will have to do this with your center because you lack a strong management team, this will lower your profitability after the transaction.

“You want to make sure that you have people in place that can run your business,” Rush says. “Whether it’s a platform, or a small cluster of centers, you want to have administrators and office managers that can handle the interaction and be the go-between for the corporate office and the local center(s).”

In addition to having a strong and competent management team, sellers should also make sure that they have an efficient staff. Think about how many staff members you have, versus how many you actually need.

“I’ve seen centers that have too many staff members in the back office, or that are overstaffed in the clinic space by one or two people,” Rush says. “You should look at those numbers, evaluate them, and right-size your staff before you go to market.

Rush says that it’s also important to take staff salaries into consideration.

“Say that you could save $60,000 in salaries by being more efficient with a smaller staff, while keeping consistency with patient interaction, patient experience and quality of medicine,” Rush says. “If you can do that, and remember that you can sell your business for a multiple of profits, you can end up with significantly more money in your pocket. If you can add $60,000, $100,000 or even $200,000 worth of profits to your bottom line, that could equate to $500,000 or $1 million in your transaction price that wasn’t there before.”

 

With a little bit of effort and preparation on the seller’s side, virtually all urgent care red flags can be appropriately and adequately addressed before the start of a transaction. Buyers will be more attracted to your center if you have all of your ducks in a row before the process begins. In addition, fixing these red flags early can help you seal the deal and maximize your profit.

 

 

 

 

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