Current Trends in the Healthcare Industry: Impact on Business Owners’ Valuation and Sale
The healthcare industry is undergoing a significant transformation, and for small business owners in the sector, there are many opportunities on the horizon. As private equity, hospital conglomerates, insurance companies, and even multi-national technology companies like Amazon look to acquire smaller healthcare businesses, business owners find themselves weighing the benefits of consolidation in the healthcare sector. The current landscape for the sector puts healthcare leaders in a position to reap the rewards by selling the businesses they’ve built. Understanding the value of a healthcare business in a rapidly evolving landscape is essential in navigating the business-for-sale marketplace.
Consolidation of Smaller Healthcare Practices
Healthcare businesses, specifically physician practices, have become a popular target for private equity firms. This trend has brought about some benefits, as well as a few challenges. Traditionally, doctor’s practices have been relatively small, with the doctors owning the business themselves. However, a recent report from the Physicians Advocacy Institute shows that nearly seven in 10 doctors are employed by either a hospital or a corporation. As smaller practices become part of larger enterprises, private equity groups are increasingly looking for acquisition opportunities.
Private equity firms are adept at streamlining operations, providing access to capital, and creating efficiencies. For healthcare business owners who’ve been contacted by a private equity firm about selling their business, there is a lot to consider. The approach of private equity firms to prioritize cost-effectiveness is valued by some physician-owned businesses, although others contend this approach may not be consistent with patients’ best interests. For some practices, selling may be a way to achieve cost efficiency, better negotiating power, and an expanded range of services.
Valuation and Selling of Healthcare Businesses
With second quarter business acquisitions climbing 8% quarter-over-quarter according to the Insight Report, BizBuySell’s nationally recognized economic indicator tracking the health of the U.S. small business economy, for health care business owners looking to exit their business, understanding the value of the business is the first step. Valuation for healthcare businesses is a complex and multi-layered process, and essential for not only discovering the true worth of a business but also for identifying pre-sale improvements.
On average, businesses take anywhere from six to 12 months to sell, with the median days on market for healthcare businesses around 212 days in 2022. This timeframe gives business owners time to develop and hone their exit strategy. According to PwC, healthcare business sales have remained resilient in the face of higher interest rates and macroeconomic concerns. With venture and private equity firms looking to further consolidate small businesses, owners have a variety of options to consider when it comes time to marketing their businesses for sale and attracting buyers.
It's never too early for business owners to learn how to value and sell their healthcare business, especially if they want to maximize its value before exiting. Whether you are passing on your business to a family member, targeting a strategic buyer, or putting it up for sale on the open market, ensure that it can survive without you and that buyers can recognize its worth. And knowing the true value of your business before selling it will help you get the best possible outcome from the sale.