There's the expression, "You never get a second chance to make a first impression." For many healthcare business owners thinking about selling their company, the first impression they may personally make on prospective buyers will come from a confidential information memorandum (CIM). And if that CIM doesn't represent the business in a professional, positive, and transparent manner, the owner may not get a chance to receive a fair offer.

What exactly is a CIM? It's the document used to market your business to potential buyers. It may go by other names, including a pitch deck, investor deck, the "book," or confidential information presentation (CIP). The document is typically called a CIM when used in the sale of a mature business and a pitch deck for startups.

The goal of the accounting function in any business, including healthcare, is to report on a company's transactions of economic substance. Financial reporting should be communicated in a way that is accurate, consistent, and timely. In the United States, accounting practices must adhere to generally accepted accounting principles (GAAP), which are organized and communicated through the Accounting Standards Codification (ASC). ASC is maintained by the Financial Accounting Standards Board (FASB). Revenue recognition for most healthcare companies is currently governed by ASC Topic 606, Revenue from Contracts with Customers.

In this column, I'm going to share my thoughts on today's behavioral health and intellectual and developmental disability (I/DD) markets. I'll speak to the macro environment because those issues are impacting the decisions of buyers and lenders. In turn, these issues impact the values buyers are willing to pay for your company. I’ll also address how you, as an owner in this space, can use this information for your own planning purposes — that is, how to do what’s best for you.

In September, VERTESS Managing Directors, joined by members of the business development team, attended three national conferences: Cape Cod Symposium on Addictive Disorders, The National Association for Specialty Pharmacy Annual Meeting, and The Home Care Association of America Annual Leadership Conference. Dominating the tradeshow floors were exhibitors in the healthcare technology space. We estimated that these companies accounted for 40-60% of the exhibitors — a common thread intersecting the three different verticals represented at the meetings.

Many small healthcare business owners struggle when they achieve a certain size or revenue stream. While these owners may see an opportunity to scale, there are challenges: They still have the "mom-and-pop" ideology (i.e., small company mentality) and their organization is not ready or capable of scaling up. This can be a frustrating experience for an owner. They feel their company can do so much more business, yet they lack the capital, know-how, technology, and/or experience to transform their organization from a small business (e.g., $20 million in revenue) business to a much larger business (e.g., $100 million in revenue).

Such a situation is risky for a business owner. If the owner attempts but struggles to grow the revenue and/or EBITDA of the company, this could greatly devalue the business in just a few years. But that doesn't mean owners should abandon their vision for growth. Rather, they may want to explore a sale or recapitalization.

In this column, I want to talk about an alarming and growing trend — one that's leading to healthcare business owners getting paid much, much less than they deserve for their company or other potentially disastrous outcomes.

This trend concerns owners selling their companies to cold callers.

The information covered in the following column is derived from two sources. First, VERTESS recently conducted a survey of more than 20 buyers of substance use disorder (SUD) treatment providers on a variety of topics, including acquisition strategy and market trends. Second, I engaged in extensive discussions with fellow VERTESS team members who collectively are heavily involved in the private capital markets and witness the cycles in the verticals we represent.

My intentions in this column are to articulate broad concepts in current trends and developments within the broader healthcare M+A markets. While I am writing for owners of all healthcare businesses, there is a special emphasis on owners of SUD treatment businesses since the survey conducted was with SUD buyers and SUD is an area in which I specialize. SalientValue also has articles on general recommendations for healthcare business owners and vertical/segment specific articles outside of SUD.

During the healthcare M+A process, the benefit of accurate financials cannot be understated. Financial reporting is the foundation on which your business is valued, and meaningful data presented in an organized fashion can lower a buyer's perceived risk. This likely means more money in your pocket on the closing date.

Yet, it is an all-too-common occurrence to see frustrations arise as a healthcare business owner works through the financial due diligence process. The lists are exhaustive, the requests elaborate, and the stakes high. By taking a few steps, even 3-6 months before you go to market, the due diligence process can be simplified in an impactful way. Sailing through financial requests allows an owner's focus to be rededicated to other, equally important parts of the sale process.

About six months ago, the Cost Plus Drug Company, entrepreneur Mark Cuban's online pharmacy, officially launched. As of late, the pharmacy is receiving significant media attention, including a study published in the journal Annals of Internal Medicine which showed Medicare could have saved nearly $4 billion in 2020 by purchasing generic drugs at the same prices offered by Cost Plus. Cuban took to Twitter to share the results with and tag President Joe Biden and other elected officials.

In this SalientValue column, I'm going to touch on a number of points I hope healthcare business owners will find helpful as they consider the current position of their companies and plan for their futures. There are warning signs ahead, and having been through the ups and downs of various business cycles, I'd like to highlight some concerns and share some recommendations.

Numerous books, articles, webinars, and other media provide detailed exit planning strategies for healthcare business owners.  This article aims to provide owners with a concise primer on key actions to take and essential questions to answer that can help better prepare themselves and their healthcare businesses for an eventual exit.

Two of the most frequent questions sellers of healthcare businesses ask VERTESS Healthcare Advisors are, "What can go wrong? How can I prevent my deal from falling apart?" Some deals are simply destined to fail, whether it be because a buyer or seller changes their mind or the parties come to an impasse. But then there are those potential deal killers that can be avoided.

Based on some recent experiences, my colleagues and I have compiled 10 reasons deals have had the potential to fall apart and offer recommendations for what you can do to reduce the likelihood that your deal experiences an unfortunate ending.