M&A checklist: Get the most out of your time
May 01, 2019
By Amanda Baethke
Due to rising costs and falling reimbursement rates, many healthcare companies are looking to sell their businesses or partner with others to exit the market or increase profitability. Mergers and acquisitions are tools that can help businesses grow in trending areas of care, refocus resources in other areas or leave the market. Before considering M&A, there are steps you can take to make your business more attractive, whether you’re the seller or buyer.
Buyer and seller trends for mergers and acquisitions
One of the largest factors leading to increased M&A activity in the healthcare sector is rising healthcare costs and continual reimbursement cuts. Durable medical equipment providers (DMEs) must be able to cover medical equipment provided to patients until they are reimbursed by those patients’ insurance providers. As rates are cut, it becomes more difficult for DMEs to cover the advanced and modern equipment that patients need.
One solution is exiting the market and allowing a buyer to pick up new lines of business to increase their profit. It can also benefit companies to sell one particular line of business or merge with a partner to add capital, as well as to improve operations to more effectively compete in particular healthcare sectors.
Not only will the seller gain the capital needed to refocus their goals, but they may also gain access to stronger customer bases in areas outside of their local reach. By expanding into more regions, they can create momentum toward expansion into more areas.
How to look as a seller
Growing your product line — In seeking expertise to make certain business lines more profitable, look for another business to partner with proven success in their region. First and foremost, they should be able to assist with marketing your line. Examine your margins to see how much you can lower your price while maintaining a profit, and streamline operations and management costs by simplifying processes to involve fewer resources.
Finding a good partner — When it comes to merging with another business, not just any partner will do. Finding the right partner is critical for success. Look for a partner with the same passion for helping patients as you have, and make sure your vision and goals align so you can develop a successful strategy together.
It helps if your partner has an established network to enhance your growth and reduce prices to increase your margins. Experience, especially in mergers and acquisitions, is another important factor in understanding risk assessment and cost minimization on your product line. If they have partnered with other businesses, they may be able to streamline the transition for particular products without any equipment or resupply delays for patients.
This invaluable experience can assist with growth in particular areas and reduce the risk of entering a new market, especially with newfound financial strength.
A good partner will be honest and trustworthy upfront to avoid issues later in your partnership. Creativity and good decision-making are also strong qualities in partners, as they will be level-headed, and apt to solve problems and provide some perspective in future analysis and expectations.
How to approach a buyer
To create a beneficial partnership, you must do your homework to determine the best options. A serious buyer will have the type of business line they want in mind and know why they want it. They’ll also know the size of the business or line they would like and, in turn, have a specific price in mind. You will want a buyer with experience and examples so you can quickly determine if they have the skills to help make your business more profitable.
Be diligent with your records and provide accurate profit and loss statements, your current balance sheet, insurance policy, tax returns for the past three years, a confidentiality agreement, and supplier and distributor contracts.
This information will help determine if the buyer is able to purchase your business and will provide them with its financial value. Being prepared with proper documentation will reflect well on yourself and business, but be aware that the buyer may request confidential information such as a patient list. They are only performing their due diligence by learning about their potential investment. Thus an NDA or nondisclosure agreement is necessary.
M&A can feel like a very time-sensitive business, especially when you’re looking to sell for an injection of capital or buy to expand your business and your profits. Capital is the common denominator, but taking the time to ensure you’re prepared to get the most out of your M&A activity will go a long way.
About the author: Amanda Baethke is Corporate Development director at Aeroflow Healthcare.