Volume 5 Issue 18, August 28, 2018
There is an unfortunate term in the world of healthcare M+A intermediaries when they discuss a difficult, or even disastrous, transaction attempt: the “unrealistic expectations” of a potential seller. It is not uncommon for advisors to blame a failure on the seller’s resistance to adopting transactional expectations more in line with the “real world.” In my experience, this reaction misses the point and is a disservice to the client.
A more self-observant perspective considers the following:
Sellers’ expectations have a foundation in their dreams and aspirations. For example, when a seller identifies an ideal sales price that an advisor believes is unattainable, the advisor might want to find out what the seller hopes to achieve with the proceeds. The expense of the dream could be driving the price and that requires a practical understanding of the seller’s goals.
Most sellers are competitive entrepreneurs, a trait that often helps them succeed. On occasion a seller has “heard” that a direct competitor transacted at a particular EBITDA multiple, so the competitive entrepreneur expects to be valued similarly. If that is distinctly at odds with the advisor’s market intelligence, then the sharing of relevant data with the seller is warranted.
Advisors are not always right and sometimes they can be surprised by a higher offer. Experienced intermediaries know that the best deals occur when the strategic interests of the seller and buyer/investor are aligned, which drives higher valuations. While such alignment is sought, it’s hard to predict. I once set a tentative price with a seller and the buyer actually offered $200,000 more than the seller sought. The seller still loved me after we closed.
There are different ways to tactically attain the seller’s goals. For example, successful advisors can craft a definitive agreement to mitigate tax liabilities while increasing the seller’s ultimate proceeds. Keeping the focus on the big picture increases tactical flexibility.
The very best intermediaries shift from a “getting shot as the messenger” position to an educational role of “let’s look at the available market data together.” This shift empowers the seller and will contribute to a successful engagement, especially when the advisor has to communicate less-than-satisfactory offers between a client and potential buyers.
Healthcare M+A advisors are not gods and when they try to live in the heavens, the fall can be a long one. It’s better to be a circumspect mortal professional and be engaged in a partnership that respects the client’s dreams, while assisting as needed in the longer journey.
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.