Mergers & Acquisitions: Assess benefits, drawbacks 

Q. Is pursuing an M&A transaction process the right decision for my organization? 

A. Typical motivations to begin an M&A process are to generate owner liquidity, mitigate personal financial risk, raise capital to fund growth initiatives (e.g., acquisitions, new service offerings, etc.), gain strategic resources and infrastructure capabilities, or take a step back from the business to retire or explore other ventures.  

M&A processes can also create opportunities to partner with like-minded organizations, capitalize on potential revenue and cost synergies, and position your organization for continued success in the current (and future) market environment. 

Shareholders must weigh the loss of majority ownership, timing considerations and personal financial goals against these potential benefits to, ultimately, decide if a transaction makes sense for them.  

My business is going to grow; should I wait to sell? 

In short, it depends. There are avenues where sellers can receive credit at closing for current growth initiatives such as recent/near-term acquisitions or newly implemented, immature service lines through pro forma adjustments. These adjustments increase the earnings base that investors utilize to value the company and can help increase enterprise value. Additionally, partnering with an experienced investor and receiving an infusion of capital often enables operators to accelerate existing growth plans to achieve milestones faster than they would have been able to independently.  

Further, most partners will encourage (or even require) existing shareholders to retain a meaningful minority ownership stake in the business post-close. This structure aligns incentives between the buyer and seller and allows shareholders to directly participate in the financial upside created by the continued growth of the company.  

However, if growth initiatives are unproven and viewed as riskier by the buyer community, it’s likely worthwhile to allow those opportunities time to demonstrate traction and sustainable financial performance. This will meaningfully increase the likelihood of receiving pro forma valuation credit. 

Kevin Palamara is managing director at Provident Healthcare Partners. Reach him at kpalamara@providenthp.com.