Investing in Investment Bankers
Owners of Ambulatory Centers go through perhaps the most important single financial transaction of their lives when they sell a center. From the decision to sell part of your business to the closing of the deal requires a team of industry professionals who can assist the seller in driving the best price. An integral and essential member of this team is doubtless the investment banker.
While some physician owners don’t see the necessity of seeking the aid and guidance of an investment banker, it has been proven time and again that the most successful selling endeavors utilize the expertise of these professionals.
Why might someone choose not to bring an investment banker on board?
“When many owners of urgent care centers, quick care, immediate care and retail health centers hear the term ‘investment banker,’ they conjure up images of Wall Street and pinstriped suits, power negotiators and complex financial dealing,” says Blayne Rush, president of Ambulatory Alliances, a healthcare investment banking and urgent care center broker firm. “In reality, it is far different.”
Investment bankers have experience in the marketplace that an owner simply does not. With a large amount of contacts within their individual networks, the first thing bankers bring to the table can be summed up in one word: market.
“Depending on the size of the organization, an investment banker can create a market for a seller that a seller might not be able to create on their own,” said Roger Strode, partner with Foley & Lardner, LLP in Chicago. “Knowing specifically what buyers want and what the ‘dos and don’ts’ of the industry are, bankers are incentivized to drive as good a bargain and as high a price as they can for you.”
An evaluation of the practice is key to discovering how to best promote its strengths in an ever-changing market. Investment bankers are resources of knowledge about the in’s and out’s of the marketplace and potential buyers.
“A healthcare Investment Banker will do a deep dive on your business, prepare the center and the center’s financials for the buyers’ rigorous due diligence process, manage that process, negotiate on your behalf as well as proactively market your urgent care practice to the entire buyer universe which virtually ensures that you obtain the highest and best purchase price proposals,” Rush said. “In short they level the playing field.”
Again, it is the experience and knowledge brought to the table by the investment banker that makes him or her essential.
“An investment banking team should possess significant industry and transaction experience coupled with advanced finance and accounting knowledge,” said Kyle Bohannon, Executive Vice President of Strategy & Development at FastMed Urgent Care. “Such attributes will enable the banker to appropriately position the client among the broader universe of potential buyers and highlight unique selling points.”
Aside from providing an obvious service for an owner, the involvement of an investment banker allows the physician to keep his or her focus where it belongs.
“The banker enables the seller to focus on running the business without becoming overwhelmingly distracted by the sale process, which could erode long-term value in the event of a protracted (or broken) transaction process,” Bohannon said.
A seller shouldn’t feel that by bringing a banker on board he is “stepping aside” to let someone else run the show. Rather, according to Rush, it is an active and logical step to a successful sale.
“[A seller] can merely respond to whomever comes calling and collect the requested due diligence materials that he has and financials in their current form, or he can take a very proactive, systematic and strategic approach to selling their business,” Rush said.
The selling process is full of complexities, requiring countless hours and attention to be successful. The investment banker, according to Kevin Ryan, attorney at Epstein, Becker and Green in Chicago, can help with this.
“[Investment Bankers] can help the seller understand what is involved in a sale,” he said. “The investment banker does this for a living, while the seller may be involved in a sale once in a lifetime.”
Driving up the value of a center for sale is another service that an investment banker brings to the table.
“Urgent Care investment bankers are well versed in the legal and financial details of transactions as well as the various revenue enhancing models of urgent care businesses,” Rush said.
The successful utilization of these models by the banker, according to Bohannon, requires that he be accurate and unbiased in conveying his opinion to the seller concerning the prospects for the sale.
“An effective banker will devise a strategy in concert with the seller’s long‐term objectives,” he said. “If executed properly, the value creation resulting from these initiatives will exceed the requisite transaction fee and yield a complete alignment of economic incentives.”
The proper preparation of a center by an investment banker will result in the highest value of a center being brought to market.
“[Investment bankers] will help you understand your business as the investor sees it and work with you to be prepared to tell your story and explain any risks,” explained Rush. “When buyers or investors believe that you are prepared and understand your business, they are more likely to take you seriously, believe what you are telling them and increase the purchase price and improve the terms they offer.”
The Value of the Investment Banker
Not all investment bankers are created equal. Choosing the banker for your individual situation starts, in Strode’s opinion, with finding one with knowledge and experience in your particular industry.
“There’s a great difference between an investment banker who buys and sells chemical businesses, for example, and one who buys and sells surgery centers,” Strode said. “A good healthcare investment banker has to have market knowledge, understand reimbursement and the regulatory aspects of the business.”
Having an investment banker whose experience is tailored to your industry cannot be overlooked.
“Not all investment bankers have the same subject matter expertise,” noted Ryan. “A seller wants to work with an investment banker who understands the seller’s industry.”
A critical step in finding the right professional for the job has to do with the seller’s initiative to do his or her own diligence on a prospective banker.
“That banker should be able to provide you with a lot of references, whether it be lawyers, accountants, advisors or other sellers, so you can ask about others’ experiences with a particular banker or firm,” Strode said.
It is these references that will most likely provide the most valuable insight into the experience and success rate of a banker. Looking for long-term relationships with relevant buyers and a successful track record are signs of an effective professional.
In the end, there is one attribute to the banker a seller chooses to work with that should always be kept in mind.
“The banker must be someone who can get it done,” says Strode. “A seller shouldn’t just hire someone to drive as hard a bargain as possible and drive up a high price and then, in the end, not sell. That’s not what you are paying for.”
Rush compares the successful investment banker at the lower levels to a street fighter, noting that a seller wants someone on his or her team who will have what it takes to drive and execute a deal when faced with difficulties and obstacles throughout the process.
“No different than in diagnosing, creating a treatment plan, treating the patient, you cannot guarantee that you will not have something go wrong during a sale,” Rush said. “But you can plan, do trial runs, adjust and have contingencies in place in order to maximize the desired outcomes and the right investment banker will do just that in this process.”
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