Frequently Asked Questions

How do we protect confidentiality?

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?

While EBITDA is a commonly used metric for valuation analysis, we find that it is overly complex for deals in the <$1M price range.  SDE, or Seller’s Discretionary Earnings, is a simpler and as common metric used to value small businesses. It represents the entire financial benefit your business would provide to a full-time owner-operator. SDE is calculated by taking your business’s net profit and adding back owner’s salary and certain discretionary non-business expenses .  It tells an individual looking to acquire your business how much they would make if they worked full-time in the business.  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 may be 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, we find using a multiple of SDE presents a simpler and as accurate representation of what the Buyer is looking to achieve. 

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 an 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.

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 90 – 120 day 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.  Key drivers of a sale timetable are; Revenue momentum (+/-), Population or Prospect density in the market, and living desirability of the market.

How much is my company worth?

Many healthcare service providers sell within a range between 2.5-3.5 x trailing three year Seller’s Discretionary Earnings.  That is to say a multiplier of SDE.  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.