Frequently Asked Questions
Q: How do we protect confidentiality of proprietary information?
A: HCAG understands just how critical it is to maintain confidentiality throughout the entire M&A process. Our firm is very careful in safeguard proprietary information, de-identifying contact info, and never divulging important data without an executed confidentiality agreement with all qualified buyer prospects. Proprietary information is only provided when required during the buyer / seller process.
Q: What makes HCAG’s Buyer and Seller Network one of the nation’s largest?
A: Our healthcare network of buyers and sellers has been developed throughout the past 30 years through ongoing relationships with active, prospects, and candidates of home healthcare, hospice, medical staffing, acute care, long term care, DME/IV/02, diagnostic imaging, and with many other healthcare service providers. Our extensive experience in the healthcare industry provides our firm with a direct pulse on the healthcare market; knowing which organizations are selling at a premium, what companies are looking to acquire, and how to get complex deals closed.
Q: What is the difference between a Finder / Advisor and a Business Broker?
A: HCAG provides advisory services for sellers and buyers as a Finder. Our advisors require over 15 years of merger and acquisitions experience, and over 20 years of direct healthcare experience. All HCAG Advisors have been former CEOs or CFOs of healthcare organizations. Finders are not licensed like business brokers, but proven specific industry valued opinion, do not prepare documentation, or negotiate deals on behalf of either sellers or buyers. Typically, a “Business Broker” legally is a licensed agent of a principal that is registered with a state’s real estate licensing department. As agents of principals, brokers have certain fiduciary responsibilities that entitle them to prepare data, negotiate and conduct due diligence on behalf of the principals they represent. Because of licensing requirements, business brokers typically limit their business to a state rather than focusing on a specific industry. A “finder” is not required to be licensed and is not an agent of the principal: Finders are primarily responsible for making introductions and acting as intermediaries between principals. Finders are usually professionals with extensive industry experience, who are knowledgeable about the national M&A marketplace of that industry. Although finders may offer their opinions, they do not dispense formal advice, prepare documentation, or negotiate on behalf of the sellers or buyers. Principals use finders to identify opportunities but must rely on advice from attorneys, CPA’s, etc. to analyze and act on the opportunities introduced by the finder. HCAG is one of the nation’s leading healthcare M&A advisory finders in the industry.
Q: What is the main difference between an ASSET PURCHASE and a STOCK SALE?
A: Stock sales include the sale of all corporate assets, liabilities, possibly cash, accounts receivable, bank debt, IRS and even CMS liabilities. In an asset purchase, a 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. One key point, whether a transaction is an asset purchase or a stock sale, typically assets and liabilities are entirely negotiable at closing. In the healthcare industry, many deals are asset based because of risk associated with contingent liabilities. In all cases, it is extremely important to consult with a qualified tax advisor, and an experienced transactional attorney before entering any binding agreements.
Q: How much is my business or agency worth?
A: Many healthcare service providers sell within a range between three to five times normalized EBITDA; a multiple of EBITDA. 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 usually sell for a discount below the range. To complete a valuation, a company’s financial and operational data is required. At HCAG, we offer a “FREE” preliminary evaluation to all providers considering a divestiture.
Q: What is required during the due diligence process?
A: Due diligence is nothing more than 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 should expect buyers to thoroughly review all clinical, operational, and financial records. For most sellers, this process ought to require representatives of the buyer to spend a time at the seller’s place of business. The buyer will 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. Often, price and terms may be renegotiated, in reason, after due diligence if any concerns are discovered, or if the performance of the company changes during this time the buyer is conducting due diligence.
Q: How are personal expenses a seller may run through their business considered?
A: The most commonly used metric for valuation analysis is EBITDA. When a private company has extenuating personal (e.g. cars, club dues, etc.) or non-recurring expenses (e.g. fire, lawsuit, etc.), it is appropriate to calculate an adjusted EBITDA, and to present a recast or restated financial statement. This reflects the normalized financial characteristics of the company, along with the actual numbers. It is critical to disclose, explain, and defend each assumption used to adjust the actual EBITDA; clearly, honestly, and transparently.
Q: Do we know buyers, and actively develop ongoing buyer relationships?
A: Absolutely! HCAG has ongoing relationships with buyers who are actively pursuing homecare, hospice, DME/IV/02, medical staffing, acute care, long term care, diagnostic imaging and other healthcare service providers nationwide. The M&A marketplace is subject to constant change as market conditions cause buyers to become sellers and sellers to become buyers. HCAG’s experience in the market give us an exceptional advantage when conducting dedicated campaigns to identify and qualify prospects. We know who is buying at a premium, who is selling for a discount, and where opportunities are in each state.
Q: How long will the process take to sell my Agency / Business?
A: Generally, sellers can expect the process to take 90-120 days from a decision to sell to the close of a transaction. This timeline can vary depending on the market, a state moratorium, etc. A typical transactional process includes: 1) the collection and analysis of data for valuation, 2) the qualification of prospective buyers and the execution of confidentiality agreements, 3) negotiation of the Letter of Intent, 4) the completion of due diligence, and 5) negotiation of a definitive purchase agreement and the transfer of all applicable licenses. Learn more about HCAG’s proven transactional process – CLICK HERE!
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