Exit and Growth Strategies for Middle Market Businesses

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Healthcare M&A Industry Update

By Peter Heydenrych | May 08, 2015

stethoscopeHealthcare M&A activity for the sector for Q1 2015 included 167 closed deals according to data published by industry data tracker FactSet, with an average enterprise value of $236 million. Favorable credit markets and cash-rich balance sheets are spurring continued strategic activity in the healthcare sector and M&A in general. Private equity buyers are also increasingly active with interest rates remaining at or near record lows. Healthcare services represented more than half of Q1’s transaction total. Other sectors, such as behavioral healthcare and managed care, also had significant activity. Biotechnology and pharmaceuticals were also active sectors driven by investment from venture capital firms.

The Centers for Medicare and Medicaid Services (CMS) is proposing revisions to its accountable care organization (ACO) guidelines to increase incentives and reduce penalties for participating health care providers. About 330 Medicare ACOs have been formed since 2012 under rules established in the Affordable Care Act (ACA). ACOs can earn bonuses for lowering the cost of care and improving quality, but they were scheduled to begin facing penalties in 2015 for exceeding cost benchmarks. The CMS has determined that many ACOs are not ready to assume financial risks associated with the program. To maintain participation, officials have proposed an option where some providers can avoid penalties but earn smaller bonuses for another three years, according to Modern Healthcare.

US consumer prices for medical care commodities, an indicator of healthcare costs, increased 4.2 percent in March 2015 compared to the same period in 2014. US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 1.9 percent in March 2015 compared to the same month in 2014. Total US revenue for healthcare and social assistance rose 5.4 percent in the fourth quarter of 2014 compared to the previous year.

Read the Entire Healthcare 2nd Quarter Newsletter Here

Business For Sale by Mobile App or Web Portal?

By Peter Heydenrych | Apr 20, 2015

Phone with appsFor business owners looking to execute an M&A transaction to buy, sell or merge, or to raise capital for a privately owned company, the world has changed quite dramatically in the last 20 years. It wasn’t that long ago that Investment Bankers hand-searched the printed Thomas Register of Manufacturing Companies to find prospective buyers for their clients. The Thomas Register, of course, has gone online, along with numerous other searchable “databases” such as Hoovers, OneSource, Capital IQ, and so on. Online databases, however, is not where the story ends. Through Google, Bing and other search engines, the internet has opened up a vast world of access and connectivity.

In an Inc. Magazine article “Merger and Acquisition Deals Moving Online” Erik Sherman points to the growth of online venues as a key deal sourcing element increasingly used by M&A Professionals. The article suggests to an exiting business owner that ” …  according to an online global survey … you’d better get yourself online in the right places .. [along with any other search avenues you may explore]”. In a Bloomberg News article “An App for Finding the Perfect M&A Match” Manuel Baigorri writes, “There are apps for dating, shopping, and hailing cabs. Now there are apps for matching companies for takeovers.”

A 2012 Lead Generation Benchmark Report noted: “Over the past decade, the way people buy products and services has completely transformed.” The report characterized as a “Monumental Shift”, the change in buying behavior amongst small business purchasing decision makers, from the traditional reliance on vendors’ salespeople, to the self-empowerment derived from the ability to become educated and informed through research and social media access. Read more »

News From the Healthcare Industry

By Peter Heydenrych | Feb 20, 2015

HealthcareHealthcare M&A activity for North American based target companies in the  sector for Q4 2014 included 94 closed deals (more than 300 announced), with an average enterprise value of $228 million. Full-year totals for 2014 broke previous records for the number of deals and the dollars spent. More than 1,200 healthcare industry transactions were announced last year, an increase of 26% over 2013’s total of 1,035 transactions. The previous record for most transactions in a year was set in 1997, at 1,287. Total deal value reached $387.4 billion in 2014, and an increase of 137% over 2013’s total of $163.7 billion. The pharmaceutical sector accounted for 55% of the year’s total spending ($213 billion) and 14% of the deal volume (188 transactions).

As for the 2015 M&A outlook in the sector, activity is likely to keep booming in the first half of 2015 as Americans continue to enroll in healthcare plans through the exchanges.

Total revenue for the US healthcare sector is forecast to grow at an annual compounded rate of 5 percent between 2014 and 2018. US consumer prices for medical care commodities, an indicator of healthcare costs, increased 4.8 percent in December 2014 compared to the same period in 2013. US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 2.4 percent in December 2014 compared to the same month in 2013. Total US revenue for healthcare and social assistance rose 5.3 percent in the third quarter of 2014 compared to the previous year.

Posted by Peter Heydenrych.

Read the Entire Healthcare 1st Quarter Newsletter Here

Selling a Business – The Cost of Capital

By Peter Heydenrych | Jul 12, 2011

Whether you’re selling a business, buying a business or growing a business…securing affordable funding is an absolute must.  But, what’s affordable and available to one company may simply not be an option for others…depending on the circumstances.  Our July Middle-Market Pulse took a very quick look at the types of funding available to companies at different stages of development…and the costs associated with each funding type.

Woman with GraphOne thing to keep in mind when considering funding a purchase or planning for corporate growth…if you borrow it…you’re obligated to pay it back…whereas if you seek out investors, repayment need not be part of the game plan.  Please comment on your recent experiences obtaining funding.


Read the July Middle Market Pulse.

Posted by Peter Heydenrych.

Is It Time To Sell My Business?

By Peter Heydenrych | May 12, 2011

You may be asking yourself  “Is this the right time to sell my business?”  Well, the answer just may lie in the condition of the capital markets. When the capital markets dried up during 2008 and 2009, the percentage of equity in completed transactions hit levels not seen in years.

M & A Debt Multiples

In order to purchase good, quality companies, buyers were contributing more and more of their own cash to the deal.  In the second quarter of 2009 we saw average equity contributions reach near 60%.  The balance of the deal structure was usually a combination of senior and mezzanine debt.  These high levels of equity contributions were a direct result of the limited capital available in the market.  As lending has slowly improved, we are now seeing the blend of debt to equity more equally balanced.

The April Middle Market Pulse provides a great snapshot about how lending levels effect M&A deal flow, so read the entire article now.

Posted by Peter Heydenrych.

Do Your Diligence Before You Go To Market

By Peter Heydenrych | Mar 22, 2011

 As M&A activity continues to pick up in 2011, and as you enter the final push to get deals to the finish line, deal killers like “time” and “surprises” need to be avoided at all costs.  Jim Zipursky, of the CFA Omaha Office, does a great job in summarizing what can go wrong and how to avoid it.  The article is a must read and you can find it in its entirety here.

Posted by Peter Heydenrych.

Successfully Executing the Optimal Exit Strategy – Positioning Strategies

By Peter Heydenrych | Jan 20, 2010
Part 3 of 7

We have been looking at the two-fold challenge faced by Business Owners wishing to “extract themselves and their wealth” from their businesses in the next decade.  Firstly, that the economic recovery may be slow, and, secondly, that the retirement of the Baby Boomers will put “10 million” businesses on the market in this period.

From this perspective, we recognize that many companies will not sell without careful planning and preparation.  The point of considering possible “Positioning Strategies” is that most business are not being run with a mind to “selling”, and are typically not optimally prepared for an exit because:

  1. the ownership and management roles are not properly separated, and
  2. the key determinants of value, namely growth and risk, are not calibrated to the expectations and desires of market buyers (investors)

Exiting through a sale, recapitalization or merger generally involves investors and may involve lenders. Management is pivotal.  Exiting through a transfer of the business to family, management or employees, or through a gifting strategy, may or may not involve lenders but, once again, management is a pivotal issue.  Exiting through liquidation, on the other hand, does not depend on management to the same extent.

Generally, the different Exit Strategies depend on key considerations as follows: Read more »

Successfully Executing the Optimal Exit Strategy – The Solution

By Peter Heydenrych | Dec 07, 2009
Part 2 of 7: The Solution – Know the Endgame

The Issue is how to Extract yourself and your Wealth

We’re looking at how business owners can most successfully extract themselves and their wealth from the company they own and, typically, run, recognizing that the success of this critical process will have a direct and significant impact on their family, associates, employees and, of course, themselves. Business owners want to know that their legacy is assured and that a wealth transfer can be effected to assure their life-after-business goals, including the protection of their loved ones.

In Part 1 I noted that my Business Owner clients are encountering a challenging and demanding market, partly because credit has been tight, and partly because buyers are already anticipating the boomer exit era which will give them multiple acquisition options and the ability to be selective, pursuing only quality opportunities. I also noted that this “oversupply” does not appear to have an end in sight, which means that business owners expecting to exit in the next decade need to be systematic, employ a professional team, plan, prepare and execute a selected “optimal” exit strategy.

It will take a Military Campaign to engage and overcome this Market Condition

Not a single day goes by without someone in the media asking how it is that we’re engaged in Iraq or Afghanistan without an Exit Strategy. i.e. without knowing when, why and how we will ensure an endgame.

Don’t be reactive or opportunistic about selling your business! Be proactive, methodical and in control! Read more »

Successfully Executing the Optimal Exit Strategy – The Challenge

By Peter Heydenrych | Nov 19, 2009
Part 1 of 7: The Challenge

In advising business owners during this past year, I have seen, firsthand, how unforgiving the market has become. In one case, rather than wait to sign an LOI, a seller invested in audited financial statements simply to increase the odds of being shortlisted. In another, a business owner accepted the buyer’s premise that a full-price deal required that he stand behind his projections in the form of a significant contingent payment.

Is the “unforgiving market” just the recession, or a reflection of a long term reality?

Boom-er Bust

I read daily about the challenges facing boomer business owners expecting to sell in the coming years. Frankly, it’s not just boomer business owners, it’s ALL business owners who are affected by this extraordinary situation. My clients are finding that it takes perfect planning and execution to reach the finals of the beauty contest. Good enough just doesn’t cut it any more … and won’t, for the foreseeable future!

According to an article published by Robert Avery of Cornell University in February 2006, “the majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10 to 15 years.” Read more »

CFA Opens New Office in DC

By Peter Heydenrych | Apr 20, 2009


Press Release on PR Leap