A Sale or Merger

What you should consider when selling your business.

By Chris Reading, PT

Much like a marriage, the sale of your business should be considered carefully—matched for goals, personalities, and values on the front end and predictable, long-lived, and happy life on the back end. Therefore, make sure your partner is going to be a good long-term fit for you, your employees, and your business.

One of the first decisions that you will need to consider is whether to explore the marketplace yourself or whether an advisor should guide the process. Your decision will depend on your business’s resources, your understanding of the process, and potential buyers in the market.

Familiarity can be gained through straightforward conversations with potential buyers. As a frequent buyer/evaluator of physical therapy practices, I have found the following are key aspects in the process.

For starters, this is your business, which was likely built over years or decades with hard work and personal risk. You should only proceed with any sale-related process at the pace with which you are comfortable and only to the extent that you are aware of what you can expect before, during, and after the process. This should include a “no strings” evaluation of your company, a detailed and clear understanding of purchase, value, and related terms; and a clear picture of what “life after sale” will look like. Key terms to work out include: the amount of cash offered upfront as well as overtime; retained ownership or outright sale; employment and/or partnership terms; restrictive covenants; at-risk (if any) purchase considerations; after sale expectations; material changes to the business including name, billing consolidation, and personnel changes; and due diligence process, timing, and expectations.

You should have a clear understanding of how a potential buyer is valuing your business. Typical transactions are priced at a multiple of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) or pretax earnings with add backs for depreciation, amortization, and adjusted for any changes in owner compensation or significant one-time or nonrecurring expenses.

Working out the financial aspect of the transaction is the easier part of a “sale-evaluation process.” The difficult part of evaluating a potential sale is determining the “fit” of your goals, personality, vision, and desired company culture with that of the potential buyer or business partner. Again, make certain your “marriage” is going to be long-lived, happy, and rewarding for all involved. If you plan to stay with your business after the sale or merger, you should have a clear understanding of the relative strengths of your new business partner. Are they knowledgeable in areas where you need additional support? Do they have significant experience in this business? What is their horizon for maintaining ownership in the business? Will it likely be sold again in a short period of time? Finally, with any sale-related evaluation, speak to several owners who have sold or partnered with the purchasing-company you are considering. Ask the potential purchaser to include both recent and not-so-recent sales so that you are comfortable that “life after sale” will become a reality if you proceed with your transaction. 

Chris Reading, PT, is a PPS member and president and chief executive officer of US Physical Therapy, Inc. He can be reached at creading@usph.com.