With today’s healthcare environment evolving, management teams are can be challenged in understanding the new landscape. That is why outside advisers are so important. Along with an attorney and accountant, owners often hire an M&A advisor to be part of their inner circle. This is particularly true for healthcare providers and vendors to providers as healthcare will be changing drastically over the next 5 years.
Why hire an M&A advisor?
M&A advisors provide professional advisory services pertaining to merger and acquisitions and growth strategies to companies. They help evaluate strategic alternatives, create a market for a company where one may not exist or expand a market where one does exist. M&A advisors open access to critical relationships in an industry and provide a factual foundation so managers and owners can make sound decisions. They advise on exit or wealth accessing strategies and develop plans for a company sale, recapitalization or IPO. Most large corporations retain investment banking firms to advise them regularly. Smaller companies need such adviser even more, because they typically lack experience or knowledge on the options in accesses the full wealth they have created in their companies or how to navigate through the acquisition process. M&A advisors also provide a specialized skill in executing on merger and acquisitions and capital raising initiatives.
When are M&A advisory services most beneficial?
Hiring an M&A advisor becomes more important as the complexity of an industry’s market increases or changes due to market trends or legislative changes. When a company faces any significant financial decision, it should consult with an M&A advisor to gain an outside perspective realistic market value and deal structure options. Because private companies are not traded on a public exchange and day-to-day value is unknown, M&A advisors can provide advice on market value and where or if future markets will pay the highest premium.
How are M&A advisors compensated?
Most M&A advisors are paid a modest retainer and then a success-based on successful closing of the transaction. Some companies choose to pay their M&A advisor a monthly retainer in order to obtain detail market data and to have them as part of the company’s board of advisors or inner circle. This is especially beneficial to an owner that is within 12 months of making a decision about exiting their company.
What are the advantages of hiring a healthcare M&A advisor?
Hiring an M&A advisor significantly increases the likelihood of executing a superior and timely transaction outcome and allows management to focus on core business operations, even if that means choosing not to complete the transaction. Companies choose to hire an M&A advisor for following reasons:
- Expertise and experience. Running the company is management’s core competency. The core competency of M&A advisors is deep and up-to-date knowledge of an industries market, access to multiple types of buyers and sellers and an in-depth understanding of successful transaction structures. They often have decades of experience negotiating mergers, acquisitions and divestitures between buyers and sellers, as well as raising capital from financial institutions. Ideally, the M&A advisor will have completed transaction in the client’s industry.
- Relationships are the most important tool an M&A advisor has. A good M&A advisor is able to leverage his access with buyers and sellers, capital sources and industry thought leaders on behalf of his clients. If a client needs a contact in any portion of the industry, the M&A advisor should be the first call. While potential buyers may be contacting a company without being solicited, an M&A advisor will have specific information on the type of transaction structure the buyer will offer, the premium they will pay and how the buyer will manage the due diligence and closing process. This is invaluable to a company that is looking to extract a premium or finding the right partner. In addition to unsolicited buyers, it is often prudent for the M&A advisors to create a larger market where a company can be certain they have evaluated all potential offers and potential partners. It’s why most M&A advisors use DealZumo.
- Efficient outsourcing. Today’s owners of healthcare businesses cannot afford to lose focus on the core operations of their business. Exploring a potential merger or acquisition can be a time-sink for those that may not fully understand the process of a transaction. Outsourcing to the transaction management to an expert project manager, the M&A advisor, can allow the management team can remained focused on core. Even relatively straightforward acquisitions or divestitures can take months of management’s attention to complete. To help ensure success for the core business and the transaction, leave the financial advisory work to the experts.
- Objectivity and independence. Company leaders must objectively examine their alternatives and may need an outside perspective and guidance to identify optimal solutions. M&A advisors bring experience and help establish realistic valuations and transaction expectation. Many times, the business is of the largest personal assets of an owner. In the heat of negotiations over valuation and various provision of a purchase agreement, an owner can lose sight of all the options available to him or just not know when a deal is a bad deal. An M&A advisor is there to lead the transaction and layout all the potential options and pitfalls for the owner, including walking away. It’s not as easy to walk away as some owners think after they have been involved in lengthy negotiations to sell their company.
- Developing transaction alternatives and structures. An M&A advisor draws upon experience to tailor the transaction to fit the company’s needs, navigating different market conditions, time constraints, complex covenants, liability or labor regulatory issues. A good M&A advisor should not only access or create a market for a company, but have the deal structure and legal acumen to explore the best transaction options for the company.
- Optimal outcomes. Good M&A advisors create value for their clients. In a company sale or financing transaction, he or she will help identify the full universe of potential acquirers or capital sources, create a professional and competitive process attract multiple offers and consistently yield a closing price or financing saving incrementally high enough to cover the cost of investment banking fees. However, some of the best transactions are those that are never completed. An M&A advisor should be acutely aware when to advise a client to forgo a transaction.
M&A advisors can be a vital partner when considering how market conditions may be effecting strategic options. Whether considering short-term or long-term planning, an investment can provide market data and macro analysis of an industry to clearly identify and narrow strategic alternatives. M&A advisors can help access and maximize the wealth an owner has created after years of hard work.