Seller Profiles and the Timing of the Sale
Over the last weeks, The Ambulatory M&A Advisor has covered topics regarding the current market and its effect on the possibilities regarding the sale of your urgent care business. However, the big answers to placing your urgent care on market lie in understanding the type of seller that you are and when the best time to sell fits in with your business lifecycle.
The Seller’s Universe
Scott Witter, director of business development, M&A at U.S. HealthWorks says that the current seller market revolves around all types and all motivations.
According to Witter, there are “Five Buckets” of people with typical motivations to sell their urgent care business.
- The Retiring Owner
That obvious one is that retiring or near retiring entrepreneur looking to step away from the practice or maybe has a few year window. That’s an easy acquisition for a group like us. We are really kind of taking control and setting up some kind of transition or retirement plan for that seller,” Witter says.
- The Overwhelmed Entrepreneur
Witter says that this type of seller is very common for him to see in the market.
“It’s the seller who might have gotten off to 3, 4, 5 clinics. Maybe it’s just 1 or 2, and this person is the CEO, the head of accounting, the head of billing, the head of payor negotiations, the head of HR, the lead provider all rolled up in one. They are working over 100 hour work week and really there are just overwhelmed,” Witter says. He adds that these sellers have the desire to continue to practice and want to continue to see patients. The goal of this sale is to offload a lot of the administrative work.
“That’s where a buyer like us can come in and help out and work out a win-win situation for a provider. We like to keep providers around; we like to keep continuity there. Certainly the value that we are bringing to the table is having a heavier hand with payor negotiations, contracting, vendor relationships and things like that,” he says.
- The Ambitious Entrepreneur
Witter says the ambitious entrepreneur is another category of seller that is a more of a fit for private equity groups. The ambitious entrepreneur wants to continue to grow and build upon what has been built so far by bringing in outside capital.
“You are now seeing the private equity groups as being potential sellers. They often have a window of 5-7 years, sometimes shorter depending on the age of their funds. You are starting to see those turn back out in the market,” Witter says. “There are a number of others out there that have turned over recently.”
4-5. Hospitals and Other Strategic Owners
“We have made a few acquisitions of clinics that have been out of hospitals where they haven’t necessarily been running the program very well, it might have been a drag on their management capital, it might have been a drag on profitability; they are looking to move out and move on,” Witter says.
He adds that his firm has seen other groups in the market like physician staffing companies.
“Maybe it’s a company that’s been running hospital’s programs and through other acquisitions they ended up with a handful of urgent cares and they are looking to divest. There’s a variety of potential sellers out there,” Witter says.
When is the best time to sell?
Blayne Rush, president of Ambulatory Alliances LLC says the best time to sell depends not only on the seller, but on four details that must be examined prior to making the decision to sell.
“As in my life, your life, businesses and market segments in a financial market, they all have a pattern; they all have a lifecycle. Whenever you are looking at the question of when you should sell, you need to look at where the owners and investors are, as compared to what their desires are and what their current abilities are,” Rush explains.
Rush says you also need to look at what stage your business is in, in its own lifecycle as well as what stage the urgent care market is in its lifecycle. He also recommends that you examine the financial markets and see where they are because the stages are fairly consistent between the business life cycle, the market and how you define those.
“You have start up, initial growth, rapid growth, slowing growth, plateau and decline. Obviously some people spend more time in different stages of that lifecycle dependent on how much capital they have, how much energy they have etc.” Rush says.
Rush says that technically, businesses get sold in every stage of lifecycle.
As an example, Rush uses an angel investor and a selling urgent care business.
“If you take on an angel investor, you are simply selling that start up. You are bringing on a partner and selling a piece of it at start up,” Rush says.
As far as the lifecycle of your business, Rush focuses on the rapid growth stage. He says buyers are buying in the future, not the historical. He says they care for the historical to the extent it’s predicting the future.
“They want to know that there is still growth in your business. It doesn’t matter if it’s a platform, a standalone, a 3 center; regardless, they want to know if they can still grow that business,” Rush says.
Rush explains that as a seller, you want to be around 70 percent up rapid growth stage of the business’ cycle; he adds that the situation is similar with the actual market.
“If you’re north of the midpoint of the rapid growth stage of the market, the market has already proven itself, and people understand the business and more people are coming into the market. Look at hospitals; traditionally those guys are later to the game. They want to see it play out and see that the thing works. So they start coming into the market because it is about competition. The more competitors you have, the more people chasing your business, the higher those numbers are. Obviously debt is cheaper than equity, so whenever debt market is cheap and easy is when you best want to sell,” Rush says.
Rush says all businesses require some form of capital in order to grow and expand. Debt costs significantly less than equity. According to Rush, the bigger the company is, the easier it is to obtain debt or to get a loan. Therefore, the bigger the company, the easier it is to leverage.
Joshua Kaye, managing partner, DLA Piper adds that now is a good time to sell based on the market’s multiples at significantly high levels.
“But in terms of for your own organization and making that determination, a lot of that is going to be driven by how would your company be valued.” Kaye reminds sellers that the higher multiples go to companies that are generating a greater level of EBITDA.
“That’s where it ties into your business model. Why is your organization in the urgent care space? What is the market you are trying to serve? Is your goal to be the top location by brand and various strip malls across a certain geographic area? Is your goal to create an alternative to employers as employees are taking on more of their cost? Is your goal to drive a hospital partnership model?” Kaye says.
Kaye says all of the above questions factor into when would be the right time to sell; and equally important, whether or not you’ll be able to successfully get and command a successful exit at a premium multiple.
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