M&A FAQ
American Healthcare Capital is the go-to firm and most trusted name in Healthcare Mergers and Acquisitions.
What is the difference between a Finder and a Broker?
“Business Broker” is a legal term of art with a specific meaning: a licensed agent of a principal that is registered with the state department of real estate. As agents of principals, brokers have certain fiduciary responsibilities that entitle them to prepare data, negotiate and conduct due diligence on behalf of the principals they represent. Because of licensing requirements, business brokers typically limit their business to a particular state rather than focusing on a specific industry. A “Finder” is not required to be licensed and is not an agent of the principal: Finders are primarily responsible for making introductions and acting as intermediaries between principals. Finders are usually professionals from a particular industry who are knowledgeable about the national M&A marketplace of that industry. Although finders may offer their opinions, they do not dispense formal advice, prepare documentation, or negotiate on behalf of the sellers or buyers. Principals use finders to identify opportunities but must rely on advice from attorneys, CPA’s, and possibly other advisors to analyze and act on the opportunities introduced by the finder. AHC is proud to be one of the leading finders in the healthcare service industry.
How do we protect confidentiality?
At American HealthCare Capital we understand that the sensitive nature of each transaction requires total confidentiality. Employees, patients, suppliers, and the competition need not know your intentions until you are ready to announce that a deal has closed. We guard your proprietary information: executing confidentiality agreements with every qualified prospective buyer, seller, or third party financing source. Furthermore, we don’t provide comprehensive information about our listings just because someone has signed a confidentiality or nondisclosure agreement. We start with preliminary summary information and provide more detail on an “as needed” basis only when appropriate.
What is required during due diligence?
Due diligence is the verification of all representations made by the seller upon which an offer has been based. Due diligence is not initiated until after an offer has been accepted and a letter of intent has been executed. Sellers can expect buyers to exhaustively review all clinical, operational, and financial records. For most sellers this process should require a few representatives of the buyer to spend a week or so at the corporate headquarters of the seller. The buyer should then immediately conduct a final analysis of all pertinent information and proceed to the negotiation of the definitive purchase agreement with the seller. If due diligence verifies the representations of the seller, the definitive purchase agreement should reflect the price and terms agreed upon in the letter of intent. The price and terms may be renegotiated up or down after due diligence if new concerns are discovered or if the process takes so long that the performance of the company warrants a change to the originally agreed upon price and terms.
What about personal expenses that the seller runs through the business?
The most commonly used metric for valuation analysis is EBITDA. In the case of a private company with significant personal (e.g. country club dues, fancy cars, etc.) or non-recurring expenses (e.g. fire, lawsuit, etc.), it is appropriate to calculate an adjusted EBITDA and to present a recast or restated financial statement that reflects the normalized financial characteristics of the company along with the actual numbers. However, it is absolutely imperative to disclose, explain, and defend each assumption used to adjust the actual EBITDA in a clear, honest and forthright manne.
What is the difference between an ASSET PURCHASE purchase and a STOCK SALE?
In a stock sale, the seller sells the actual corporation including all assets and liabilities, usually including cash, accounts receivable, bank debt, and all IRS/CMS liabilities. In an asset purchase, the buyer only buys certain core assets of the company, usually leaving the seller with the cash, accounts receivable and all liabilities associated with the company. Whether a transaction is a asset purchase or a stock sale, who actually gets what assets and liabilities at closing is entirely negotiable. Because of the risk associated with contingent liabilities, many (but not all) transactions in the healthcare industry are asset deals. In all cases, it is extremely important to consult with a qualified tax advisor and an experienced transactional attorney before entering into any binding agreements.
Do we know a buyer?
Yes! American HealthCare Capital has ongoing relationships with active buyers of homecare, DME/IV/02, medical staffing, acute care, long term care, diagnostic imaging and all other healthcare service providers. However, the M&A marketplace is subject to constant change as market conditions cause buyers to become sellers and sellers to become buyers. Because we are always in the market, AHC knows who’s buying at a premium, who’s selling for a discount and what deals can get financing. If we don’t already know enough good candidates, we will conduct a dedicated search to identify and qualify new prospects.
How long will it take?
The seller has a lot to gain by following a carefully measured process. In order to allow time for: a) the collection and analysis of data for valuation, b) the qualification of prospective buyers and the execution of confidentiality agreements, c) the negotiation of the letter of intent, d) the completion of due diligence and finally, e) the negotiation of the definitive purchase agreement and the transfer of all applicable licenses, most sellers can expect a four to six month process from the decision to sell to the close of the transaction. In a hot market the timetable can be accelerated, but in cooler times the pace can be glacial.
How much is my company worth?
Many healthcare service providers sell within a range between 3-5 x normalized EBITDA. That is to say a multiplier of EBITDA. This most commonly used formula is a pretax earnings multiplier that assumes an asset purchase where the seller keeps the cash and accounts receivable and is responsible for any liabilities associated with the company. Larger, more profitable companies can sell for a premium above the range while smaller, marginally profitable companies can sell for a discount below the range. Actual financial and operational data is required to do a genuine valuation. At American HealthCare Capital, we offer a FREE “no strings attached” preliminary valuation to any healthcare provider who wishes to investigate a divestiture.
