Selling a Clinical Business

By Kerry A. Castronov

In 1997, 15 years after starting a private duty home care agency, the time had come for me to sell my business. Managed care was at its all time high in our market, dictating substantial reductions in services as well as rates. I also felt the crunch of increased competition form the larger home care players.

From a strictly financial perspective, I was comfortable. With sound advice from an experienced intermediary and from my partner husband who is a certified public accountant, I remained confident of our financial performance.

But as we all know, the value of our companies cannot be measured in numbers alone. This is especially true in health care business, where what separates the best companies from the "also rans" largely comes from intangibles-clinical concerns like quality of care, caregiver-patient relationships, community involvement and outreach. I knew that identifying and presenting these intangibles would be the key to getting the best deal. Working with an intermediary, we were able to quickly identify the clinical attributes that buyers value most.

Attracting Bugs
At this stage in the health care evolution, Joint Commission accreditation is a must. Obviously, employing the best possible caregivers is very important. While tough to evaluate, there are many ways to measure and present a company's commitment and success in this regard.

Buyers look for companies with more than well-documented clinical protocols. They want those protocols effectively communicated to caregivers. They seek feedback to revise and upgrade these protocols as necessary. Buyers value companies with strong internal training programs that not only continually upgrade caregiver skills, but also provide professional stimulation that translates to low turnover, another valuable intangible.

With buyers striving to develop new revenue sources, an added value is having clinical personnel that can sell-an extremely valuable combination of skills. In a selling capacity, these clinicians are ideally suited to understand and empathize with the needs of patients and referral sources. As such, they are better able to position the company's products and services with key referral sources and hence gain greater acceptance. From an administrative perspective, it is important to buyers that caregivers be treated as employees, not independent contractors. This eliminates potential tax problems arising when staff is inappropriately classified as independent contractors and payroll taxes have not been paid by the employer.

Beyond staff basics, there exists an increased emphasis on measuring and reporting clinical outcomes. Buyers find value in companies that capture this type of data and have management information systems to process the information. Similarly, companies on the cutting edge of technology-like those using hand-held computers in the field-entice buyers looking to develop these capabilities.

From a management perspective, buyers want a strong middle management in place should the seller decide to leave the company. This is particularly true in clinically oriented companies where success is dependent upon the relationships with caregivers and referral sources. Most buyers today want sellers to remain in their positions after the sale to minimize any concerns of referral sources and employees that the business is unstable, which could compromise standards of care and disrupt longstanding referral relationships. They recognize, however, that it is a rare seller, who by nature is an entrepreneur, who can successfully make this transition long term. It follows that agency buyers prefer those companies where non-owner managers fill the roles of clinical coordinator or director of nursing.

Seller Considerations
With an understanding of these clinical intangibles, I was able to position my company in the market to win the best offer possible. Still, as much as I had evolved from a practitioner to a businessperson, as a registered nurse and certified case manager, I was uncomfortable evaluating the attractiveness of a deal on dollars alone. I worried that, regardless of how much a buyer might pay, they might not share the same standards of care.

Questions and anxiety swirled in my head. Would there be an effect on the high quality of services we had always been proud of? Would our patients, referral sources and staff experience a difficult transition period? Would I be able to look them in the eye after making the deal and know that the reason I started the company in the first place-to offer our community the highest standards of quality care-had not been sacrificed in the hands of the wrong buyer?

Take it from someone who has been there. A seller must determine what they want for themselves, their patients and their staff. For some, the decision is strictly a function of dollars and cents, which is reasonable. For others, selecting the right buyer provides value in and of itself. It is, therefore, not unreasonable to accept a slightly lower offer from a buyer if it provides peace of mind to the seller.

Accordingly, when considering possible offers it is important to identify those buyers with demonstrated skills, expertise and commitment to standards of care. Such information can be obtained from an experienced intermediary, or from other sellers who have sold their companies in the past. These people can provide first- and second-hand accounts of a buyer's clinical track record after a sale. It is also reasonable to ask the buyers themselves for references from previous sellers.

Many factors come into play when selling a business. The added clinical dimension of a home care business impacts the value of the business as well as the choice of the best buyer. These considerations demand as much attention as any others do when negotiating the best possible deal.