Once the owner has made the decision to sell the behavioral healthcare organization and has gone through the initial steps of forming a team for the sale and creating a company profile, the next step is to identify the best buyers.
Kevin Taggart, co-founder and managing partner at Mertz Taggart (Johns Creek, Ga.), a healthcare merger and acquisition firm with an emphasis on behavioral healthcare, breaks potential buyers into five groups:
- Individuals: This group typically lacks access to capital and experience with large transactions.
- Strategic investors: People who are in the industry or a similar industry.
- Financial investors: Private equity groups or investment partnerships.
- Competitors: Businesses or individuals usually more interested in competitive information than buying.
- Family members
Market the company
At this time, the owner can create a teaser to highlight the company, its revenues and profitability. The goal is to provide enough information to gain interest but not enough to identify the owner or the company. An interested buyer moves the sale into a phase that includes a confidentiality agreement and disclosure of the profile with full information.
“The goal here is to get as many people looking at the same time to create a competition among buyers,” Taggart explains. “That should raise the value of your company.” But a note of caution: Ensure that anyone receiving a copy of the profile has been qualified to buy.
Go on a ‘first date’
When marketing to potential buyers, initial meetings or conference calls are like first dates. Both parties get to know one another. Usually price is not discussed.
When asked about the reasons for the sale, Taggart advises to always put a positive spin on it. If nothing else comes to mind, “other business interests to pursue” is always a legitimate answer.
The role of the owner during the transition is a typical concern. Be open to what the buyer is looking for, Taggart says, but it’s important to be honest.
These initial negotiations are often informal and establish the wants and needs of all parties. They also cover the pricing expectations, the timeline of the process, and the owner’s role post-transaction.
Letter of intent and due diligence
The buyer then delivers a letter of intent (LOI) that includes non-binding information about price and terms and outlines whether the sale is an asset or stock purchase. Binding items in the LOI are the exclusivity and no-shop clause.
During the due diligence process, the more organized the owner is, the more trustworthy the appearance to the buyer. Aside from trust, time is the other major “deal breaker.”
“If for some reason you can’t get back to them right away, at least let them know,” he says. Sometimes, the buyer wants to meet key employees. Taggart suggests pushing this far down the timeline, to right before closing, if possible.
Close the deal
The buyer’s attorney prepares the purchase agreement. An experienced M&A (mergers and acquisitions) attorney and CPA is crucial. Throughout the closing period, Taggart calls out the “transaction killers,” which include:
- Prolonged closing process;
- Inexperienced or overzealous attorneys;
- Clerical issues during due diligence;
- Revenue downturn;
- Undisclosed lawsuit in process;
- Owner’s emotional attachments.
There are variables at every stage of the sales process. Most owners can expect to complete the sale in four to 12 months.