I recently had the honor of sharing our national exit planning platform, The Five Enablers of Top Dollar Acquisitions, to a group of top performers at the annual Home Care Association of America leadership conference in Tucson. Enabler #2 for future home care sellers is knowing your prospective purchasers (a.k.a. “Exit Doors”) and their primary value drivers so you can prepare your company accordingly. In general, there are two main Exit Doors- Individuals and Institutions.
Individuals: Many of the acquisitions we’ve initiated across the country dating back to 2005 are “retiring” founders that sell to “aspiring” Managing Owners with the capability to preserve the company’s brand equity, reputation, relationships, and compassionate care culture. Most franchises, of course, are required to sell to individuals whether it be a high net worth executive in transition or a former business owner seeking a new opportunity. All franchises are required to keep the name and business model intact. But many independent operators (non-franchises) prefer to sell to individuals as a way of keeping their legacy intact.
In any event, more than 95% of individuals fund their acquisition primarily with a government guaranteed SBA loan that requires an independent business valuation from a Certified Valuation Analyst (CVA). Knowing how their appraisal methodology applies to your historical cash flow so you can develop a baseline business valuation from which to build is a fundamental component of preparing for an eventual sale.
Institutions: Institutional investors are either industry insiders seeking inorganic growth (“Strategic Investors”) or investors outside the industry seeking an entry point (“Financial Investors”). The former includes national franchise company owned markets, consolidators, and regional providers expanding their footprints. The latter includes hospitals, senior living facilities, and private equity groups.
Strategic Investors often have “synergistic value” in the form of centralized scheduling and back office operations such that they can achieve better efficiencies post sale by eliminating costs. But they tend to incur considerable post transaction risk from changing the name and culture while replacing the departing founder-operator. Financial Investors don’t have such synergies but often place a high value on entering a high growth, high margin industry. They seek to build upon the current home care platform by leveraging the brand equity, management team and culture while maintaining its local flair. Knowing how they value home care providers and what appeals to them is another key component of preparing for an eventual sale.
We specialize in initiating top dollar acquisitions from top tier operators for top performing home care companies. Planning and preparation are key. Know your Exit Doors.
– Scott Osborne
