Selling a healthcare business
The Australian healthcare industry continues to be a hot sector for investment in 2019. For healthcare business owners that are considering selling, it’s important to get your business sale-ready. This will allow you to get the best possible sale price.
If you’re interested in selling a healthcare business, talk to Nash Advisory. We are experts at valuing, buying, and selling healthcare businesses, and facilitating deals that get the best possible results for our clients.
Demand for healthcare
There is a strong demand for businesses in the healthcare sector, largely thanks to Australia’s ageing population, rising medical spend per capita and the quality of Australian healthcare services.
Both local and offshore investors have shown a strong appetite for a range of businesses across the Australian healthcare sector, including:
- Medical device manufacturing and distribution
- Medical consumables manufacturing and distribution
- Integrated diagnostic imaging and radiology
- Medical technology and software
- Disability and rehabilitation services
- Medical, dental and allied health practices
- Cosmetic clinics such as laser treatments and cosmetic injections
The strong demand for healthcare businesses translates to high sales prices. To demonstrate this value, have a look at some of the most recent transactions in the industry.
Who’s buying healthcare businesses?
In the last 12 to 18 months, we have seen a diverse range of buyers seeking healthcare assets, including:
- ASX listed healthcare companies
- Large private healthcare companies, both domestic and international
- Private equity firms looking to enter healthcare, or develop an existing healthcare portfolio
- Local and regional medical practices looking to expand their practice network
What are buyers looking for?
Healthcare buyers and investors are particularly attracted to healthcare companies that have:
- Ability to sell products and services nationwide
- Exclusive arrangements to sell a product nationally
- Long term contracts with government
- Long term growth potential
- Large, diverse customer bases
- Technology that can be used and applied overseas
How do I sell my healthcare business?
For healthcare business owners that want to sell, the business must be sale-ready in order to attract a quality pool of buyers. This pre-sale preparation is vital, and importantly, should be commenced well in advance of starting any sale process.
Given the regulated nature of the healthcare industry, preparing healthcare businesses for sale can be more complex than other industries. Healthcare business owners should:
- Show stable earnings and positive cash flows with upward growth trends
- Demonstrate growth through numbers of patients or customers (or spend per patient/customer)
- Have market-leading software integrated with the needs of customers and suppliers
- Maximise productivity and promote efficient information flow between all stakeholders
In addition to the typical steps which should be taken to prepare a business for sale, an owner of a healthcare business should also ensure that the business has:
- Strong relationships with key exclusive suppliers or customers, with long-term agreements secured
- Strong relationships with key employees and contracted medical professionals
- Up-to-date regulatory and government accreditations
- Adequate medical malpractice, public liability and other liability insurances in place
- IT systems that reflect industry best practices
Examples of medical mergers and acquisitions
In the healthcare industry, there are two prominent categories that have undergone recent mergers and acquisitions activity:
- Medical consumables and devices businesses
- Medical services, hospitals and practices
Below are some key considerations for potential sellers of these businesses.
1. Medical consumables and devices businesses
Material contracts: Renew any key supplier, customer exclusivity or preferred provider agreements which are due to expire in the next 3 years.
Stakeholder consents: Prepare a plan for engaging with key customers and suppliers who require a change of control consent. Consents from government bodies can often take a long period of time.
Post-sale transition: The buyer may require the seller to stay with the business for a post-sale transition period (12 to 18 months). Sellers should plan accordingly.
2. Medical services, hospitals and practices
Doctors and key medical personnel: Start pre-sale discussions to ensure that key employees and medical personnel will be staying with the practice following any sale.
To promote long term retention and protect relationships with patients, employees and key stakeholders, buyers may also require that:
- Any vendor shareholders and medical personnel continue with the business for a transition period.
- Certain shareholder or medical personnel retain a minority shareholding in the business
- Equity-based incentives are in place for key management and medical employees post-sale
IT and software: Replace outdated IT systems with industry leading platforms. This gives buyers the confidence that the business has strong advantages over competitors.
Best practice policies: As healthcare businesses are built upon patient relationships and reputation, it is important to ensure that a business’ services and patient treatment reflects best practice.This includes branding, service quality, patient experience and privacy.