How to sell a business in the healthcare sector

A number of complex challenges face the healthcare industry – in both the public and private sector - and will potentially have an impact on the sale of your business, the price you achieve, and whether or not you are able to meet your major objectives.

Hiring the best legal, financial and business advisors will make the process easier, and ensure the money you receive from the sale is extracted and invested in the most tax-efficient manner.

So how can you persuade interested parties that your business is a good investment? Apart from providing compelling financial information, you need to focus on the challenges you face every day, and demonstrate how you overcome them.

Funding

• Drastic cuts in local authority funding for social care mean that, in some cases, healthcare businesses are barely able to cover staff wages.
• If government funding is not increased, the long-term effect could make the private healthcare industry non-viable.

 Labour costs

• Rising wage costs following the introduction of the National Living Wage (NLW) and increases in the National Minimum Wage (NMW), in conjunction with reduced government funding, is causing severe financial difficulty for many healthcare businesses.
• Staff shortages also mean that companies have to use expensive agency staff.

 Brexit

• Healthcare companies have traditionally relied on low-wage workers from the European Union.
• The uncertainty surrounding our exit from the EU has exacerbated staffing issues in healthcare – as yet, nobody knows with any certainty whether or not workers will retain their current rights to live and work here.

Operational costs

• Costs are rising in terms of maintaining healthcare business infrastructure, and research and development costs for pharmaceutical companies. Capital expenditure may be needed on care home properties and other specialist facilities prior to sale.
• Potential tax issues for global organisations where the overall effective tax rate may be brought into dispute by the tax authorities, may affect the business valuation.

Selling your healthcare business: Information Memorandum

Initially, you will need to determine your overall aims and objectives so that you can present your business in the best light. In practice, the process starts with a professional business valuation which is included in the Information Memorandum.

This also lays out details of how the business works, its customers, employees, and finances. Using a broker experienced in the industry is advisable as they will make the process smoother, and allow you to run the business without distraction.

The financial aspect of the Information Memorandum will clearly be of particular interest to prospective buyers. They will want to view financial statements, profit forecasts, asset valuations, and details of all debts and liabilities.

The Information Memorandum is distributed to interested parties, and because this is a relatively comprehensive overview of your company’s financial health, you should prepare a confidentiality agreement to be signed prior to issue.

You may decide to allow visits to your premises to give potential buyers a better picture of the proposed investment, but this also introduces confidentiality issues.

Due diligence

Those particularly interested in buying your business will undertake due diligence measures to ensure the information they have been given is accurate, and reliable enough to use as a basis for their investment decision.

They may request warranties or indemnities that offer protection in the future:

• Warranties are statements of fact about your business. They are legal documents that allow the buyer to claim compensation if the information provided is later found to be incorrect.
• An indemnity allows for the buyer to be directly compensated by you for unexpected liabilities following the sale, without them having to go to court.

Again, it is vital to obtain professional guidance when such binding agreements are requested by purchasers. This will protect you from taking on excessive future liability, and limit your exposure to the risk of personal debt.

Letter of Intent

A Letter of Intent (LOI) details the terms you have agreed. It is non-binding in most instances, but indicates serious intent from both parties. Also known as a Heads of Term Agreement, the document establishes a timeline for sale as well as detailing how payment will be made.

If you need further advice and assistance in selling your healthcare business, request a free consultation with Selling My Business. We will ensure a smooth process, taking into account the inherent problems your industry has to overcome. Call one of our experts in complete confidence.