Healthcare Business Sales in South Florida
Healthcare related businesses in the South Florida market are always in demand. The area’s high Medicare and senior citizen population along with a constant influx of baby boomers make healthcare companies in South Florida a hot commodity among many investors and entrepreneurs. Home health agencies, physical therapy centers, nurse registries, and Durable Medical Equipment (DME) firms are some of these sought after healthcare related companies. The recession-resistant nature of the healthcare industry and its recurring revenue nature often leads to premium valuations. Owners of healthcare companies should always obtain an accurate set of financial records prior to selling and consult an experienced business broker who may assess the growth rate, customer base, staff, physical assets, and general goodwill of the business in order to obtain the correct valuation.
Key Issues When Selling Healthcare Companies:
- Licensure transfer
- Non-compete agreement with key staff
- Transfer of patient or referral base to buyer
Licensure Transfer
Many healthcare related companies require AHCA (Agency for Health Care Administration) approval to transfer the license from the seller to the buyer. Home-health care companies and nurse registries allow a Change of Ownership Application (CHOW) to complete the transfer. Transferring a healthcare license can be a lengthy process taking up to several months. Issues arising due to the lengthy transfer process includes who is in charge of the business during the licensure approval process, whether money needs to be held in escrow pending the transfer, and whether the buyer can properly comply with the document requests from AHCA and be eligible to assume ownership. These sensitive issues must be understood and addressed by both the buyer and sell when negotiating a deal.
Delays in License Transfer
Some sellers will quickly lose trust with potential buyers who are unaware or uninformed about the licensure transfer process for healthcare companies. Transferring a healthcare license can be difficult and frequently faces delays when dealing with AHCA. It is thus relatively common for parties to conduct a stock purchase deal (rather than an asset purchase deal) to avoid delay and bureaucratic headaches. A stock purchase deal is when the buyer purchases the actual corporate entity of the seller rather than the assets of the corporate entity ( such as for the more common asset purchase deal). A stock purchase deal allows for a faster approval process because the seller’s corporate entity is kept in place as being duly registered with AHCA. This should be negotiated by the parties and fully explored during the formal due diligence process.
Non-Compete Agreements
- Buyers of healthcare related businesses often are concerned with whether the business has non-compete agreements in place with key staff members.
- A non-compete agreement in this context prohibits staff members from using company information for competitive purposes or from working for a competing firm for a specified time period within a specified geographic area.
- Such non-compete agreements may protect the buyer from facing future competition from the staff members inherited from the seller.
- Many nurse registries or home health companies have key personnel such as nursing supervisors, marketers, or executives that are asked to sign non-compete agreements.
- Without the proper protections afforded by a non-compete agreement, the buyer is afraid that these employees may simply take the company’s clients or referral sources and start a new company.
- Such issues must be delicately negotiated and handled with care before it becomes a problem.
- Buyers should understand that it is generally not standard in the industry for such individuals (particularly if they are actual caregivers) to sign non-compete agreements.
Smooth Transfer of Referral Sources
When a healthcare company such as a physical therapy center gets all their referrals from the owner’s personal connections, buyers will justifiably wonder what will happen when the seller is no longer there! When the owner’s personal relationships are the main way that a healthcare company procures patients, then that will pose a problem for the business valuation. Buyers will fear the loss of significant revenue after the sale. The seller and the business broker should anticipate this problem and have a plan in place to ensure a smooth transition in the referral sources from the seller to the buyer.
Seller Stays Longer to Help Transfer Referral Sources
Sometimes the seller may agree to stay on for a year or more in order to allow for enough time to gradually introduce the buyer to the referral sources. Sellers must be made aware that a buyer will want some assurances that the patients and referral sources stay with the business after the sale. The valuation of healthcare companies critically depends on maintaining the relationships with patient referral sources and securing the patient base after the sale.
The sale of a healthcare company should only be entrusted to a professional business broker with the experience and expertise required to anticipate the unique issues and challenges faced when confidentially selling healthcare companies.
Give Martin at Five Star Business Brokers of Palm Beach County a call today with questions about evaluating your healthcare related business.