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Selling your practice — You have options

June 16, 2022

Selling your practice — You have options

Synopsis
5 Minute Read

Having a Divestiture Advisor guide you through the divestiture process can protect you from some of these risks, while maximizing your valuation and providing you with multiple offers to chose from.

Selling your company or practice may be one of the most important decisions of your professional career. The repercussions of selling your practice without a calculated, planned approach can be pervasive and may include leaving money on the table, weaker deal and structure terms, poor tax outcomes, onerous post-close transition terms, covenants that are restrictive and misunderstood, poor cultural alignment with the purchaser, and the list goes on. Most people wouldn’t sell their home to the first interested party who knocks on the door, yet many professionals continue to do so when selling their practice, with negative consequences.

Having a Divestiture Advisor guide you through the divestiture process can protect you from some of these risks, while maximizing your valuation and providing you with multiple offers to chose from.

State of the health care industry

What’s happening with M&A

Prior to the COVID-19 pandemic, the health care industry was experiencing consolidation in various industry verticals throughout Canada. Interest rates were low, the lending environment was favourable, and there was ample capital to deploy with both private equity and strategic purchasers.

With the steady return to normalcy, we are in an M&A environment where there’s still ample capital in the market, and consolidation is continuing at a rapid pace. The health care sector has proven to be very resilient in terms of business continuity and profitability, while pandemic-related changes to consumer habits and behaviours have increased the demand for some health care related services. Industries such as pharmacy, veterinary, cosmetic dermatology, dentistry, optometry, health care distribution, and professional consulting may have seen deferrals in revenue in the early days of the pandemic but have since rebounded with strong results.

This has created an environment with increasing multiples, strong buyer interest in well-run practices across several verticals, and a seller’s market. Keying in on the right attributes of the practice when negotiating with prospective buyers is critical in this type of market, to enhance value for sellers in a controlled process.

Rumours vs. facts

If you’re considering selling your practice, you have no doubt heard anecdotal trends, valuations, and stories from friends and colleagues — some good, bad, and maybe ugly. Through second or third hand information, getting an accurate assessment of what’s actually happening in the marketplace can be extremely difficult. Speaking with a Divestiture professional can be invaluable to provide accurate information on your industry, including valuation multiples, typical deal structures, common pitfalls, different buyer profiles, and advice on timing.

What options should you consider?

Take the SMARTPro Self-Assessment to find out.

Selling on your terms in a structured process

Selling your practice through a structured divestiture process led by a Divestiture Advisor yields several benefits. These include:

  • Performing preliminary due diligence on the practice to avoid any surprises down the road;
  • Synthesizing your practice’s information into a concise package, keying in on value-added areas and growth opportunities in order to maximize value;
  • Building competitive tension through a controlled process with pre-approved potential buyers. This helps control both the timing of the process, as well as increases valuation;
  • Providing you with different options. Different buyers have different cultures, values, and philosophies, and having a range of options when selecting a buyer is important;
  • Vetting and ensuring you are dealing with a qualified buyer with the ability to close;
  • Managing confidentiality of the process through NDAs and confidentiality agreements. Further, having your advisor be the main point of contact with the prospective purchasers reduces the risk of your competitors, your community, or your staff finding out about a sale prematurely in the process;
  • Receiving multiple offers increases leverage and your ability to negotiate better deal terms;
  • Reducing the risk of wasting time and energy with one buyer only to become dissatisfied once an offer is presented;
  • Ensuring a smoother closing process, knowing the business points have been addressed prior to accepting an offer.

Having a Divestiture Advisor assist you will also enhance the level of professionalism in the process. Engaging an advisor immediately sends a message to potential buyers that you’re serious, you’re invested in the process, and that you have a team that is knowledgeable in the industry.

Retaining an advisor to assist you through the divestiture process also allows you to focus on what you do best: running your practice. The sale process takes a significant investment of time; it can take a team of Divestiture Advisors hundreds of hours to conduct properly, depending on the complexity of the deal. Unfortunately, this lesson is often learned too late for practice owners who try to tackle their own sale process.

Our Divestiture Advisors are top-tier professionals who sell professional practices for a living — we take the time burden off you, while providing a buffer between you and the purchaser in what can sometimes be a stressful and emotional process.

Important considerations

When considering a sale of your practice, consider these items that can ensure a smoother process:

  • Speak with a Divestiture Advisor early. The sale of your practice will take months, and most purchasers require a post-closing continuation of employment transition. Depending on the industry and the type of business, these can range anywhere between one to five+ years. If you’re selling your practice as part of your succession planning, don’t leave it until it’s too late to factor in the transition.
  • Depending on your corporate structure, you can maximize your after-tax proceeds by taking certain steps years in advance; you can reduce your risk of a tax surprise catching you off guard.
  • Understanding the steps involved in the process, and getting an estimate of value before initiating a process, is always a good idea. This is not only an important educational element, but it can also help you identify areas of improvement if there’s a valuation disconnect.
  • Aligning yourself with the wrong type of Divestiture Advisor in a sale can add time, complexity, and increases the risk of costly mistakes.

MNP’s Corporate Finance group has a wealth of experience in the health care and professional services space, with experts well-versed to manage the divestiture process to ensure you transition on the best terms possible.

Contact us

To learn more, contact Erik St-Hilaire, CPA, CA, Managing Director with MNP Corporate Finance Inc.

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