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Preparing for Acquisition in the Healthcare Industry

Business.com / Business Solutions / Last Modified: June 1, 2018
Image credit: Atstock Productions/Shutterstock

Factors spanning customer satisfaction, employee retention and policy must be navigated before selling a business in the healthcare industry.

As mergers and acquisitions (M&A) continue to trend up within the durable medical equipment (DME) field, many business owners are looking to sell either their entire company or an individual business line as new Medicare regulations make it increasingly difficult for small to midsize companies to maintain profit.

The rise in strategic asset purchases is supported by an industry’s worth of companies working to refocus and survive under insurance reimbursement cuts. Traditionally, medical equipment companies would provide everything possible to be positioned as a “one stop shop,” but considering the climate of this space, there is a large push to narrow product lines and focus on existing strengths and opportunities. By selling assets of their non-core line(s) of business, sellers will generate capital to support growth in other areas.

However, before the acquisition process can even be considered, the organization considering sale must strategically prepare to ensure the success of the transaction while maintaining their business goals.

1. Prepare your business internally

Make sure you have a management team with strong leadership in place to strengthen your financial and operational processes. By keeping this group informed and involved, they will be able to assist with your business goals and identify potential targets while structuring the agreement and negotiating terms. It is also critical that during this time when ownership is considering sale, the management team continues to execute the day-to-day activities.

Place more hands on deck by bringing in your marketing and public relations teams to develop and amplify your company narrative. Since inquiries and overall visibility of the company will soon increase, having a compelling story allows brands to build credibility and confidence among employees, stakeholders, potential buyers or sellers and more. Your corporate image will play a major role in convincing other parties to move forward with you.

2. Run your numbers

It is important to properly structure and balance an official statement of financial position to summarize your current net worth by including your assets, equity and liabilities. This allows an organization to truly showcase its profitability under current operations. By reviewing your financial needs and debt ratio, you will be able to better facilitate the necessary capital for the transaction.

Drop ship lines of business are becoming increasingly attractive to buyers considering the low overhead and ease to scale. A product mix more heavily weighted in resupply programs that demonstrates the company’s maximum potential will drastically affect the valuation. CPAP resupply, urological and incontinence products are among the most sought out lines of business to DME buyers.   

Prepare for a smooth transition by ensuring your company has no liens attached to the assets being sold. One way to accomplish this is to order a lien search. Sellers have the option to either satisfy outstanding debt or secure lien release, but buyers will expect to acquire assets that are free of all liens. It also important to be able to generate the reporting needed for buyers’ valuations.

3. Develop clear intentions

For both buyer and seller, it’s important to develop criteria that helps both organizations involved in the transaction. This starts with clearly defining objectives and ideal outcomes for selling your business.

Be clear about your motivations and what you hope to gain from the transaction. Consider how the transaction would impact not just your career, but also the company’s brand and future. Whether your goal involves expanding the type of healthcare services or products offered, diversifying customers or simply exiting the market, it is critical to understand your objectives. This mutual understanding helps finalize the deal.

4. Consider your employees and patients

When acquiring or selling DMEs, it’s important for both sides to identify and address any exisiting employee issues and concerns. This is especially important for the company looking to sell itself, as the workforce must become part of the fabric of the larger company. Generally, when a larger medical equipment provider acquires another, the existing employees serve as a valuable resource in maintaining current customers thanks to their ability to maintain patient relationships.

The intended future use and expectations of existing employees should be clearly defined and followed based on what’s best for the corporate objectives. By having an integration plan in place to quickly train and transition existing employees and technologies to continue high-quality patient care, your business should stay on track for substantial growth.

5. Maintain compliance

For a company acquiring a new product, service or smaller company, make sure you’re equipped to properly comply with the regulations set by Medicare to successfully bill for items provided to patients through insurance coverage.

You will also need to comply with regulations set forth by the FMLA, ADA and EEO, so that in the event of a report or audit, your new business will not be impacted or fined as a result of failing to adhere to regulations.

6. Keep the ball rolling

Mergers and acquisitions can be highly distracting from day-to-day business operations that ultimately dictate whether the company will be profitable or not. Don’t let company operations fall by the wayside or collapse! Allow your corporate development team to take the lead on acquisitions as you continue to focus on maintaining your profitability.

It can be difficult to close on corporate transactions, but by developing a strategic M&A transition plan that aligns with your corporate motivation, your organization will be able to accomplish its goals in the form of selling specific product lines or gaining new sources of revenue and a broader target audience.

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