Investment Bankers and What They Can Do for Your Transaction
Investment bankers are individuals that, when involved in the healthcare transaction process, can help boost the quality of a deal through their experience and knowledge of the industry, its markets, and the numerous buyers looking for their next acquisition.
Blayne Rush, investment banker, President of Ambulatory Alliances LLC says that there are some generalizations and misconceptions made of an investment banker, but these generalizations all depend on the person’s background a lot of the times.
“What I hear a lot, especially in the lower middle markets is that some of the larger, traditional buyers will tend to want to discount the investment banker’s ability to help and influence when they are speaking to the potential sellers,” Rush says.
“For example, I am working with an urgent care owner that has four or five locations. One of the larger platform buyers had spoken with them and communicated that they were speaking with a specific investment banker. The information that was relayed by the potential buyer to the seller was they did not need an investment banker because investment bankers “have their own vested needs.””
In reality, Rush explains that what investment bankers do is help sellers to level the playing field.
“We have been involved in these types of transactions before, and we understand them in a 360 degree viewpoint. We understand what the roles of the lawyers are, what the roles of the accountants, valuators etc. are. Essentially, we are able to be the head coach or offensive coordinator in this situation. We go in and help them prepare for the sale, clean up challenges and red flags, try to minimize risk of failure, and prepare the seller with what to anticipate going forward,” Rush says.
Danielle Golino, partner with McDermott, Will & Emery believes that a lot of people think they only need an investment banker if they are looking for a buyer or if they are running an auction where there are multiple buyers.
“I don’t think that is true. I think investment bankers can really help the M&A process. They are advocate in terms of presenting the best business to potential buyers in showing increased earnings, making the argument that the business is going to perform in the future, and negotiating a favorable purchase price,” Golino says.
“They also do things like organize the diligence, and sometimes issues arise where there needs to be an analysis. This could be where you have a shared employee arrangement, or you have complex relationships among the affiliated companies that requires financial analysis and separation; the bankers can really help with that financial analysis as well. In the big picture, I think the bankers really do help the process, and they are valuable in healthcare transactions outside of auctions.”
Roger Strode, partner with the law firm Foley and Lardner LLP says that a common misconception is that all investment bankers are created equal, when they aren’t.
“I liken bankers to lawyers; not all lawyers are healthcare transaction lawyers. Likewise, not all bankers are healthcare bankers. During the course of my career I’ve worked with varying degrees of investment bankers engaged in healthcare deals; those with deep industry knowledge and experience provide greater value to their clients than those who don’t,” Strode says.
According to Strode, the best bankers have a deep knowledge of reimbursement, and a good understanding of the regulatory landscape around healthcare. They also tend to have a strong feel for the segment in which they are working since not every segment is the same, even within healthcare.
“There is a real difference between a healthcare investment banker and someone who sort of dabbles in it,” Strode says.
Rush says that healthcare in general has a lot of sub-markets or niches, and knowing the specifics of a market and its buyers is critical to success.
” There are hospitals, pharmaceutical, equipment, ASCs, etc. I think it is important in the sense of understanding who the buyers are; but not only knowing who the buyers are, but what the different temperaments and interests of those buyers are,” Rush says, adding that a lot of times when these transactions occur, there is a lot of assumption and miscommunication.
“You look at these different buyers, and there are some guys that have certain qualifications and others with differing qualifications for some other reason. You need to know all of the personalities, no different than you need to know who needs a deal, and who is going through transitions. Someone in the market, and who is in constant communication with buyers will understand and know the current status of the market. They also, from an investment banker standpoint will gain the respect of those buyers.”
Golino concurs that industry experience is vital for an investment banker.
“In the healthcare space there is a vast difference between different types of providers; from home health, to ASCs, to physician practices. Even among physician specialties there are large differences. Also, multiples vary drastically depending on geography, competition in the markets and specialties,” Golino says.
It is very important that the bankers have expertise in healthcare and specifically, in a specialty. It is really important that the bankers understand that and are asking for appropriate deal terms.
As far as knowing buyers, Golino says it is important for investment bankers to know buyers if running an auction, or looking for a buyer.
“I suppose it could backfire if the bankers had certain preferred buyers they would steer clients toward without the client’s interests in mind, and the preconceived notions of which buyers are better than others,” she adds.
According to Strode, it is important that investment bankers know who the buyers are, and he thinks that it is important that they have credibility with the buyers.
“To me that is the key. If you are a seller, you want to make sure that your sell side banker has strong relationships with buyers and has credibility in relationships with buyers,” Strode says.
According to Strode, he does not think there is such a thing as too much information or too many relationships. The only potential problem that one might see with extensive contacts is that a banker may feel a need to spread things around because of their relationships.
“However, the bankers I know and work with in healthcare on the sell side, are trying to maximize value for their client, and I don’t think they make compromises from client to client,” Strode says.
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.