Mergers & Acquisitions Update During Corona Virus
Goodbye 2020, hello 2021! Never was a year-end more celebrated than 2020, and with that end, 2021 is finally upon us. 2021 is a year of optimism and hope, a year of great opportunity. Many businesses have rebounded to pre-COVID revenues, furloughed workers have been rehired, and businesses have begun to have their Paycheck Protection Program (PPP) loans forgiven. The business world has turned the corner and there is once again hope. All businesses were impacted by COVID-19 and the healthcare services industry was no exception. As the industry rebounds, healthcare business owners are leaving their bunkers and beginning to seek new opportunities.
If you were considering selling your group or practice before pandemic hit, or you are now, we would like to share a couple of timely insights and ideas you should consider from our MedCV friends at Cross Keys Capital. Cross Keys Capital is a middle-market investment bank that has extensive experience and a successful track record advising physician practices on their strategic options. Cross Keys Capital has completed the sale or merger of over 65 independent physician groups and healthcare companies. Specialty expertise includes dermatology, ophthalmology, podiatry, plastic surgery, radiology, and urology, just to name a few. Here are some tips and insights about the current market from Jeanne Proia, Managing Director of Healthcare.
Latest M&A Insights
We at Cross Keys Capital (CKC) share and endorse the MedCV mission to support our nation’s physician networks in their business growth and success. We are pleased to share a few ideas, thoughts, experiences, and recommendations we hope you will find valuable. Specifically, today we will be touching on the impact of COVID-19 on the physician practices who have been considering a sale (M&A).
The Physician Practice Management (PPM) mergers and acquisitions space has been impacted by COVID-19, but maybe not as much as you think. When physician practices began shutting down in March & April of 2020 due to COVID-19, physician owners immediately began circling the wagons. PPP loans were applied for, Medicare advanced payments were collected, and government grants were divvied out. In those uncertain times, the last thing on physician owners’ minds was selling their businesses.
“In those uncertain times, the last thing on physician owners’ minds was selling their businesses!”
While COVID-19 still affects us, we have no doubt life will return to normal. Even today, we have seen the resurgence of patients and elective surgeries. Patient revenues have rebounded in many markets and specialties, many practices have already returned to pre-COVID levels or higher. M&A markets are returning to normal, even with lingering uncertainty and unpredictable potential setbacks.
In our experience, both strategic and private equity (PE) based buyers are adapting to the new world we live in. We currently see valuations based on pre-COVID time periods or normalized COVID-19-impacted months. Weekly performance reports support this ability and show the COVID impact to volumes was an anomaly. Patient encounters are quickly returning to pre-COVID levels.
In some cases, buyers are increasing escrow monies or deferring small portions of purchase prices on deals, which puts some dollars at risk for 12 to 24 months post-close. We predict in most cases volumes will rebound to pre-COVID levels, but buyers want to share the risk in case those volumes do not bounce back quickly enough. As stated previously, many practices are already back to pre-COVID volumes today. If necessary, these deferrals/escrows provide alignment and a risk sharing mechanism between the buyer and seller.
Most importantly, we have not seen a drop in overall valuation multiples due to COVID-19 in the majority of transactions. The due diligence process may take longer due to these uncertain times and increased data reporting requirements, but that has not affected overall valuations. Highly successful practices with growth potential are still highly valuable assets.
In 2019, U.S. private equity fundraising hit an all-time high at over $300 billion, therefore buyers still have plenty of “dry powder” or capital to get deals done. COVID-19 was a risk that no one could have predicted, but it goes to show there are always “unknown” business risks lurking. It has proven to many groups that being part of something “bigger” is better when combating both unknown risks as well as the likely ones of reduced reimbursement and a shortage of new physicians entering the market in many physician specialties.
We at MedCV appreciate the willingness of a seasoned company like Cross Keys Capital to share their real-time expert advice, which is crucial to both sellers and buyers during these uncertain times!
Your goal is to get the very best possible deal financially as well as the best fit in a future partner. For that to happen, make sure you create competition between buyers! Keep in mind when a PE group with an existing platform investment or a strategic partner offers to purchase your practice directly, they are effectively your “only” buyer. As the seller, you may not be able to maximize your value, because selling directly yields only one offer. Ideally you should always try to create an auction scenario (at least 3 to 4 potential buyers) to maximize your price. Remember, “One offer is no offer.”
If you have 4 offers, each at a different valuation, you have the opportunity to reach back out to the other three low bidders and let them know they need to increase their bid to make it to the next series of management meetings or round. This competitive bidding process ensures maximum value for sellers.
Equally important as the financial impacts of a transaction are the less tangible aspects of identifying the right partner. Many choose not to take the highest economic offer but choose the partner that is the best fit. You are not just selling assets, you are finding a partner for you and your employees’ future. Visions, goals, management styles, and deal structure are crucial. An experienced banker can help you identify what is important to you and align those priorities with appropriate buyers to meet both your short and long term goals. A banker will ensure you are represented in all aspects of the transaction, including those that affect “Life After the Deal.”
Managing all this can quickly become complex and we strongly recommend you engage a expert firm like CKC to help you with this. Seasoned investment bankers like those at CKC know the market players in each region across the United States. They likely have a history of doing deals with them, too. Having access to those kinds of “Market Maker” relationships can be extremely valuable to you. Make sure whoever you select to help you with your sale has enough deal flow history and has a large network of qualified potential buyers they can quickly bring to the table. Remember, your investment banker is aligned with your interests and only your interests.
Your name is on the sign, This is a Big Deal! Make sure the firm you work with understands and respects this important fact. Deals can change and every deal is unique. Deals never end up the way you think they will. You need to find a firm you can trust to take control of the deal, one that has experience in dealing with adversity and curveballs when they arise, a firm you can trust will have your best interests in mind. The best firms like CKC will be creative and flexible as they help you figure out the right innovative deal structure and terms that work for you.
Find a trusted partner to help you with this, you will be well served. Without reservation, we at MedCV recommend you connect with Jeanne and the team at Cross Keys Capital for a confidential conversation and to learn more. Thank you Jeanne for sharing these insights and tips with the MedCV community!
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Selling Your Practice Resources & Tools
Over the next few months, we will be expanding the MedCV resource library to include quick reads, tools, and tips to help you either sell or buy or buy into a practice. From check off sheets to pro-forma practice financial templates, these downloadable tools will be useful as you navigate the process of valuing and selling your practice or group. Stay tuned!
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