Merger *before* Sale
July 18, 2022
by a searcher from Northwestern University - Kellogg School of Management in Denver, CO, USA
I own a medium-sized children’s mental/behavioral health practice. I’m in conversations with another pair of owners who have a very complementary practice – different services with different types of clinicians; but we serve the same population and in fact share many clients.
If we combined our practices ahead of an exit, the whole will be valued at more than the sum of the individual two parts. This is because our services and employees are very complementary but not duplicative; and because it will push our top and bottom lines over perceived valuation-multiples thresholds.
I’m inclined to de-risk the process by merging and then selling together, as opposed to buying the other practice outright and then selling it all on my own. We would want to streamline the integration – keep costs down and execute on the most valuable opportunities to integrate – with a focus on a successful execution of the ultimate sale while minimizing impact/change to the employees.
Thus, I’m looking for experience shares on mergers of similar entities as opposed to one entity doing an add-on acquisition of the other. Any structural differences? Differences in post-transaction integration? Things to consider? Thanks!!
in Charlotte, NC, USA
The other problem that you may run into (Felix may be able to comment on this) is with having multiple owners of your newly consolidated company. Each of you have your own goals and needs on exit and the higher multiple may not bridge the gap all the way and give everyone the most favorable outcome.
If you can wait a while to exit, buy a few local provider practices, spend time increasing profitability and enjoy a higher multiple with proven track record of running your practice and having it absorb others.
from University of Pennsylvania in Washington, DC, USA
However, a merger is not that different than an outright purchase (perhaps you mean that you would pay for the complimentary practice with equity instead of cash).
In any event, I don't think this is de-risking. In 2021, I completed two separate deals representing clients selling their mental health practices. Six months after each deal closed, I've found myself guiding my clients in a messy separation from the business. Happy to share more about some of the pitfalls offline - redacted