M&A transactions fall apart before they close nearly every day. Sometimes the seller isn’t emotionally ready to part with the business. Other times, the two parties can’t reach an agreement on valuation. Whatever the situation, several reasons are more prevalent than others, especially in certain industries, and some can be avoided if the seller prepares for due diligence in advance.
CompHealth, a healthcare staffing and recruiting agency, created an infographic with survey results from healthcare professionals. One of the questions the survey asked got to the root about why healthcare deals die before closing. Here is what CompHealth found out and what you can do to ensure your healthcare deal closes.
Top 5 Reasons Why Healthcare Mergers & Acquisitions Don’t Close
- Culture – 49 percent of respondents said the culture of the two companies merging didn’t fit.
- Political/Governance Considerations – 41 percent cited this as one of the issues for the parting.
- Agreement on Valuation – 39 percent of healthcare organizations said that this was a problem when it came time to inking the deal.
- Access to Capital – 25 percent reported that there wasn’t enough capital on hand to complete the transaction.
- Mistrust Between Parties – 24 percent couldn’t trust each other enough to get the job done.
These issues point out how vial it is to have a qualified and experienced M&A advisor to guide sellers through this process. Successful advisors have proven processes that they, as M&A experts, have refined through years of experience. These professionals know how to deliver results that sellers want. To take a look at an example of the process used by M&A advisory firm Generational Equity, click here.
One deal breaker that is outlined above is “agreement on valuation.” To avoid having a deal fall apart due to valuation differences, it is vital to always get a thorough business evaluation completed by a professional that specializes in valuing and selling companies before entering any talks with potential buyers.
This helps the seller enter negotiations with a realistic number, but it also supports and documents what the business is worth. If you enter the market without a complete evaluation on your company, you run the risk of selling for far less than it is worth.
One of the key parts of a professional valuation is “recasting” the financials of the company. This allows the true profitability of the business to be shown historically and forecasted into the future. Without recasting, you could be radically understating your earnings.
Other Key Survey Findings
The CompHealth study also had other findings that indicate that the healthcare sector will be a source of solid M&A activity in the future. For example:
- Three out of four healthcare companies are contemplating either merging with another healthcare organization or acquiring one.
- The majority of healthcare businesses, 61 percent, are interested in acquiring companies valued below $100 million.
- More than half of hospitals (66 percent) have a team dedicated to mergers and acquisitions.
- The hottest four sectors of M&A activity are expected to be primary care, orthopedics, cardiology, and hospitalists.
Healthcare companies should take note of these findings and begin to begin the preparation necessary to sell. If you own a healthcare-related company and you don’t have an exit strategy in place, now is the time to create one!
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The time to prepare your business for sale is NOW! Learn what you need to know to get started in a complimentary whitepaper from Generational Equity called Exit Planning Basics: What You Need To Know Before You Start. Download it by clicking here.
