Pharma

When’s the best time to sell your healthcare business? (Hint: it’s now!)

2017 and 2018 will likely be the best years for selling your healthcare business after which economic uncertainty is anticipated, so deals will be harder to initiate and close.

Financial Risk buy sell mergers acquisitions

There is no question that the healthcare industry is entering a period of rapid change and transformation. Such changes impact all healthcare businesses, regardless of whether they’re looking to buy, sell, or hold, as valuations within the industry will change.

It’s important to look at long-term economic trends in order to assess the best time to sell a business or expand through acquisition. According to Rob Slee’s Private Capital Markets, the US transaction market seems to run in ten-year cycles that mirror general economic activity:

US Ten year private markets

Note that each decade begins with a transfer cycle, with two or three years of “deal recession” as banks and other capital providers tend to reduce investment activities. Bigger corporations slow down growth plans and the economy is not buoyant. During this part of the cycle, only cash-intensive buyers are making transactions and the seller does not have much power of negotiation. It’s definitely a buyer’s market.

By contrast, the middle years of the cycle are considered “prime selling time.” Capital is flowing, there is plenty of financing available and big companies begin to make strategic acquisitions. This is a seller’s market.

Although no model can be 100 percent accurate, Slee’s Transfer Cycle provides guidance if you want to sell your healthcare business for the best price possible or acquire a company for expansion.

If you sell during the deal recession period of the cycle, the price point and negotiating conditions will be less favorable than in a market where 1) multiple players may want to acquire you, and 2) financing is more readily available.

Similarly, if you’re looking to expand through acquisition, you’ll generally need to pay more during the prime selling time than if you wait until the almost recession or deal recession periods of the cycle.

Based upon this model, 2017 and 2018 will likely be the best years for selling your healthcare business. After 2018, economic uncertainty is anticipated, so deals will be harder to initiate and close.

In other words, if you’re thinking of selling your healthcare business within the next two years, now is probably the time to get started.

If you’re planning to sell, here are some tips for getting your company ready quickly. First, you should analyze your business based on industry trends, economic cycles and political changes, to identify any changes needed to increase the perceived value of your business.

It’s then time to look internally and perform a full financial analysis that allows a stronger positioning for the company, organizing the balance sheet (to avoid surprises during due diligence) and benchmarking typical indicators for specific healthcare sectors, emphasizing the strategic value of the business. This is how you position your business strategically.

What happens when the timing is off? One medtech company was recently in this position. They were ready to sell, but not receiving a lot of attention because the timing was not optimal. With some tactical work, they were able to reposition themselves in an adequate time-frame, highlighting their goals and solid financials. This made easier for buyers to analyze the opportunity in a shorter timeframe. This is when the deals happen. 

If, however, you’re looking to expand through acquisition, you may find bargains even in this seller’s market. In this context you should identify candidates to buy that will be “ripe” when the prime selling time is over, in this case around the end of 2018.

It’s important to remember, though, that every company is different and there are always opportunities to increase the value of your company throughout the economic cycle.

Photo: alexsl, Getty Images

Avatar photo
Avatar photo

Teresa Gonzalo

After receiving her MBA from IE Business School and a PhD in nanomedicine from Groningen University in Holland, Teresa became the head of the U.S. office for Venture Valuation, where her global team evaluated healthcare companies facing a fundraising event, licensing deals, or an M+A transaction. She was also the CEO and co-founder of Ambiox Biotech (application of dendrimer nanotechnology for antiviral treatment). Teresa regularly speaks at healthcare conferences in the Pharma/Biotech and Medtech sectors. She has co-authored two patents in nanotechnology and drug delivery and was named the 2011 MIT TR35 Innovator of the Year by the Massachusetts Institute of Technology. Teresa was among the top 100 women leaders in Spain in the entrepreneurial and innovative category for two consecutive years in 2012 and 2013. In addition, she was selected as Woman of the Year by Scientific Entrepreneurial Woman Today magazine .
At VERTESS, Teresa is a Managing Director with considerable expertise in Pharma/Biotech, Medtech, Diagnostics, Healthcare IT, CRO, and related healthcare verticals. She is dedicated to providing enhanced value to M+A transactions.

Shares0
Shares0