By Tom Schramski, PhD, CM&AA
Volume 2 Issue 10, May 12, 2015
A couple of months ago, a prospective buyer was considering making an offer for one of our opportunities, a profitable healthcare company with a good track record of service quality and great upside for development with increased cash investment. After their review, they told me the following: they were not going to make an offer because their overhead expense was significantly higher than that of the seller and, thus, it would not be as profitable when they took over.
We discussed the possibility of synergistic value that could result from using their existing management structure, but they responded that they “just couldn’t make it work.” My conclusion was that the acquisition would have to be ridiculously profitable or at death’s doorstep for any transaction to make sense for this potential acquirer.
Most often we look at the purchase of any product or service as something that will prove its worth by improving our condition as we see it. In the purchase of a business, the buyer is focused on how the acquisition can improve the bottom line while hopefully gaining synergistic value within the context of operations as they see it(i.e. reducing acquiree administrative employees). The problem with the buyer analysis it that it is often one-sided.
Here are a few possibilities for buyers to consider:
It’s worthwhile for a buyer to consider that there may be additional synergistic value by taking time to thoughtfully assess the success of an acquired entity. It’s also fair game for the seller to suggest this possibility as part of the negotiation and due diligence processes.
Tom was the Founder and Managing Partner of VERTESS. He was a Certified Merger & Acquisition Advisor (CM&AA), consultant, and Licensed Psychologist with over 35 years of very successful national experience in the healthcare marketplace, including co-founding and building a $25 million behavioral health/disabilities services company. Tom represented sellers and investors across the healthcare spectrum and was recognized for his executive leadership in the 2005 Entrepreneur of the Year issue of Inc. Tom passed away in December 2018.