Selling a healthcare business can be a complex and intimidating process that could take six to nine months to complete. To get you ready, we’re taking a look at five steps to selling a healthcare business as well as providing some planning advice for each part of the process.
Step 1 – Determine the market value of your business
Before you reach out to potential buyers, you should conduct a financial assessment of your business to estimate its market value. Too often, owners hit the market with only a gut feeling of the value of their business. This usually leads to disappointment and costly mistakes later in the process because they often miscalculate their market value. They might turn away reasonable offers if they overestimate the value or sell for too low if they underestimate the value. It is best to have a third party evaluator that knows how to value healthcare businesses to conduct a formal valuation. These valuations are inexpensive and can save you a lot of time and money. (Wyatt Matas has 15 years of experience providing valuations.) A good valuation expert will also give you ideas to maximize the value of your business. Having a clear understanding of the market value of your business before your go to market will put you on a firm foundation as you prepare to negotiate the purchase price.
Step 2 – Reach out to potential buyers
Once you have determine your businesses market value and you’re ready to hit the market, you should start gathering a contact list of qualified buyers to let them know that you’re planning on selling. During this time, it’s understandable if you want to keep information about the sale private so you don’t upset your patients and staff. That’s why healthcare businesses often chose to be represented by merger and acquisition advisers. M&A advisers with industry experience typically have a prepared list of potential buyers that they can reach out to discretely.
Now with websites like DealZumo, it’s much easier for you to market a sale yourself. DealZumo is the first stop for most buyers in healthcare, so you are sure to find an ideal match for your business. M&A Advisors also use DealZumo to identify new and active buyers that they might not have found otherwise. The DealZumo process is designed so that you only talk to those buyers that you believe are the best qualified. This this allows you maximum control of the M&A process.
Step 3- Negotiate the terms of sale-letter of intent
After you’ve identified and engaged potential buyers, you will start negotiating the general terms of the sale. These negotiations result in a formal offer or letter of intent. There is still a lot of work to do after a signing of letter of intent, but this agreement helps both parties to clearly define the purchase price, how the purchase price will be paid and the date the deal will close.
The process of negotiating the letter of intent does take time and buyers often need additional information about the business during negotiations. You only have so many hours in a week and you will need to keep running your business. It helps for you to define the process ahead of time with buyers so they can know what to expect. For example, you might say that you’d be willing to discuss details after hours or during set times a day. If you have never sold the business before, it will be helpful to have an experienced M&A adviser or attorney to lead the negotiations. They can handle the details while you remain focused on the business.
Step 4 – Post-letter of intent primary due diligence
After you’ve received, negotiated and signed a letter of intent with a buyer, primary due diligence begins. In the buyer’s perspective, they are taking on a lot of risk by agreeing to buy a business so it’s understandable that they want to learn as much as possible about your business. Expect the buyer to request a large amount of information about the business in the form of a primary due diligence list.
The primary due diligence list is generally the same for every deal, with nuances for each industry segment. It often helps to gather these documents before you actually go to market. It can take 30 to 45 days to collect all this information, so if you wait until after the signing of the letter of intent before gathering the information, it can really hurt deal momentum if it’s not ready ahead of time. DealZumo has a standard list of due diligence items buyers often request, which is available for you to download. Gathering these documents ahead of time can save you valuable time and allow you to focus on the items that really matter when closing a deal.
Step 5 – Negotiating the definitive purchase agreement
When the buyer has completed reviewing the due diligence information, they will draft definitive purchase agreement to finalize the sale. This the actual document that says you are transferring assets to another party. The definitive purchase agreement can be an intimidating document; however, most purchase agreements use the rather standard language with many common terms. Your attorney will certainly review the details with you, but you should also familiarize yourself with key terms and concepts in the agreement prior to negotiations. To help with this, check out DealZumo’s list of common terms and the definitions found in a definitive purchase agreement so you can negotiate effectively and close your deal. You can also read more about negotiating tips for selling a healthcare business in this article.
Handling the sale of your healthcare business can seem less overwhelming if you break the process down into five clear steps. By following this advice, you will be in good shape for your future deal.