Volume 5 Issue 2, January 16, 2018
Much of the literature on failed healthcare transactions focuses on seller-related problems – unrealistic expectations, poor margins, a troubled market, and even fraudulent financial reporting. But it takes two to tango and buyers have their role. Sometimes, they lack other-awareness in the following ways:
- Not appreciating the story of the business – Healthcare business sellers always want to share the story of their business, whether the challenging early days when they struggled to meet payroll or the recognition they may have received for a remarkable achievement. When buyers try to quickly get to the “bottom line” they often miss important aspects of the business life cycle and may inadvertently alienate the seller and raise issues of trust.
- Missing the seller's legacy tie – While sellers often have a concern for the well- being of their employees post-transaction (especially in labor intensive healthcare companies), they typically have a larger connection to what they have helped to create. Like underappreciating the story, some buyers forget to explore all of the key relationships that tie management to other employees, leading to concerns by the owner that the match may not be a good one.
- Losing sight of community networks – Many successful healthcare organizations rely on strong networks of community support, especially in rural to mid-sized locations. When buyers ignore this local fabric they may complete the transaction, but also sputter early on as their community support becomes community indifference.
- Pushing too hard in the transition before closing – Overeager buyers sometimes try to get to the healthcare transaction finish line too fast and begin acting like they own the company before closing. On more than one occasion we have seen sellers cancel a lucrative LOI because of the extra stress created and the concern about what would happen to their healthcare organization.
- Underutilizing the talents of the owner/CEO – When long-term owners/CEOs transition, they often enter into an agreement to be a consultant or employee for a few months, and possibly several years. Healthcare business buyers and investors may see this relationship as accommodation, not important. When owners/CEOs feel marginalized in the negotiation for their post-transaction future, they may walk from the deal because they feel slighted. It’s not that they have to continue being the CEO, it’s more about their own personal transition and fear of bad decision making by the new ownership.
- Not initiating a participative integration plan soon enough – Sellers are often the first person in negotiation to raise operational integration issues, and they often expect that the buyer will incorporate their input, as well as that of key management. When the buyer moves very slowly in integration planning post-LOI and doesn’t welcome input, this can raise a big red flag for the seller, who may slow down the due diligence process or even cancel the LOI because they doubt the buyer’s operational competence.
- Forgetting to connect their M+A team with their operational team – In larger strategic healthcare buyer transactions, there can be a chasm between the buyer’s M+A team and their on-the-ground management. This gulf can be expressed in contradictory information and directives given to the seller. Sellers may experience this as chaotic, raising their anxiety about closing and possible damage to their business operations prior to closing. Depending on how this is handled by both parties, the transaction can be derailed because of poor internal communication on the buyer’s side of the table.
Even the best of transactions fuel the anxiety of healthcare business sellers and buyers. Sellers are concerned about selling their baby; buyers are concerned about the future of the baby they have adopted. Both will always pay attention to their concerns first, and being mindful of the other’s perspective will always improve the ultimate value of the deal.