Your Primer to Healthcare Mergers and Acquisitions

Selling Your Business Is Nothing Like Selling Your Home

Mar 12, 2019

by Rachel Boynton

by Rachel Boynton, MBA, CM&AA

Volume 6 Issue 5, March 12, 2019

I recently received an email from an aggressive, prospective buyer interested in a human services company I represent. He sent a laundry list of financial questions about the company. I answered some of the high-level questions but informed him that it would be best if he spoke with the owners before we got too deep into the weeds.

This recommendation did not go over well. Clearly annoyed with me, the prospective buyer claimed I was not representing my client well because it was my job was to get him the information he needed to determine whether to proceed with making an offer.

"After all," he said, "you wouldn't expect me to buy a multi-million-dollar home after only seeing the outside pictures. I would want to walk around the inside several times, tour the neighborhood and review the inspection results."

He sounded a bit taken aback when I agreed with him. But then I reminded him that this wasn't a home he was considering purchasing. It was much, much more.

Understanding the Differences

Here are three significant ways selling a human services business and a home differ.

1. Culture. When my husband and I were preparing to sell our intellectual and developmental disabilities (I/DD) company, we never considered selling to an organization with institutional settings, including group homes. While selling to such an organization might have brought us the biggest return, the bottom line was not our sole focus.

We took tremendous pride in building a strong organization that empowered individuals to be a part of their community. This culture was our life's work. We believed that it was unacceptable to have spent 20 years building and teaching our staff and community only to pass the business off to a contradictory model.

Some prospective buyers couldn't wrap their heads around the idea that we would reject a great offer out of principle. But we didn't work as hard as we did to have another company come in and undo all that we accomplished. We also refused to subject our teams, their families and staff to this experience.

When you sell your home, you take down your pictures, move out the furniture, pack up the decorations and sometimes even remove the curtains. It goes from a home to essentially an empty shell that the next owner will fill with their own culture, personality and preferences that will turn the building into an entirely new home.

A business does not go through such a transformation. It relies on its established culture to differentiate it from others. Many stakeholders will only remain with that business if the culture continues after a sale.

2. Nurture. Let's imagine you live in castle. You have the means to afford a chef, housekeepers, a gardener, a nanny and a personal assistant. Through the years, they all learn your schedule, preferences and values. They help care for your children, feed your family and keep you on task. They practically become your family.

Now it's time to move from the castle and allow the next royal family to move in. How would you feel about allowing these new rulers to take over without knowing how they would treat the people who helped you achieve and grow over the last few decades? What if you had to leave your children to live in the west wing of the castle, your sister and brother in the east wing? Would this change how you evaluated the new residents?

Ask most human services business owners about the lives of their staff and they will tell you endless stories. Ask about the first person they supported … and the second … and the fifth. In all likelihood, they will remember these people in great detail. The owners will have stories of nurturing a young college graduate into the senior vice president they are today or of helping someone living in horrible conditions find a way to achieve a fulfilling and happy life today.

Most owners start their companies making little money but find joy and motivation in the everyday successes of their colleagues, the people they supported and the business they ultimately grew.

3. Investment. Consider people who flip houses for a living. Their goal, first and foremost, is to make more money than they put in. For most human services business owners, this "flip" model rarely applies. Rather, selling their business can be more aligned with the 1986 film "The Money Pit."

The movie is about a couple — played by Shelley Long and Tom Hanks — who buy an old, rundown home that quickly becomes more work than they ever imagined. It becomes so much work that — spoiler alert — it threatens to ruin their marriage. But just when they are about to walk away from each other and the project, the home is suddenly complete, beautiful and everything they dreamed of.

They realize the project was not about creating the most valuable home possible but was actually a labor of love and representation of what they could accomplish together. They live happily ever after in the house.

After all of the money spent, work put in and strain to their relationship, one can assume that they cannot ever imagine selling that home. If they do, it will be to someone who appreciates the details, character and history more than the square footage, pest inspection results or resale value.

Supporting a Community, Preserving a Legacy

What the buyer described in the introduction to this column did not know was that when I shared his questions with my sellers, their response was blunt. "He hasn't even spoken with us on the phone, let alone met us in person," they said. "I don't think we want to consider him because all he seems to care about are the numbers."

This is a similar sentiment I hear from almost all of my sellers when a prospective buyer seems solely focused on financials. Most sellers I work with are evaluating prospective buyers just as heavily as the buyers are evaluating the company. This is likely the case, at least in part, because we work in human services, with businesses often started by one or a few dedicated and passionate people who set out to assist those in need of help. Over time, these businesses grow to become successful organizations that attract buyers.

What this boils down to is that the business is more than just a structure. It's something that becomes deeply personal — a lifetime of work serving a community and building a legacy that is usually difficult to walk away from, which makes selling a delicate matter.

Sellers with this level of attachment worry about whether their staff will be treated well by new owners. They are also concerned about whether those individuals receiving care will continue to get the best possible services, which include the dignity and respect the business and its staff have shown them.

To conclude, I say to that annoyed buyer — and all who view buying human services businesses as similar to buying a home: selling such a business is very different than selling a home. When you sell a home, the family is not included. It's simply a building that the buyer will fill with their own culture, memories and family. Many of the human services businesses I represent already come with a house full of family members and a culture that makes the business an integral part of the community and community members it serves. All of the inspections and spreadsheets in the world won't reveal what you need to learn most.

Rachel Boynton

Rachel Boynton CM&AA

Managing Director

As Co-Founder of LifeShare, a multi-state human services and healthcare organization, Rachel has a unique background of over 20 years of successful operational and executive experience, in addition to an MBA in Healthcare Management. She began her professional life as a home care provider, an experience that created the foundation for the innovative quality and success of LifeShare, while also changing her life. At LifeShare, she managed their Operations (Adult Day/Residential; Child Therapeutic Foster Care; HCBS; Child Therapeutic Day/Diversion Services, and Educational Programming), Finance, HR and Quality Assurance (facilitating COA accreditation and policy/procedure implementation). After selling LifeShare to Centene, Rachel remained during the transition of management and helped to provide outcome measurements and COA compliance reporting. At VERTESS she is a Managing Director providing M+A advisor and consultant services, specifically in the I/DD, behavioral health and related healthcare markets, where systems are rapidly evolving, and providers are striving to adapt strategically to diverse challenges.

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