Greg Dupuis: Know your company's worth

Monday, April 30, 2007

Selling your business is not a decision to be made lightly. Providers should consider many factors before putting their company on the market, including their motivation for doing so. Greg Dupuis, director of merger and acquisition services for Oldsmar, Fla.-based Bridge Ventures, has successfully completed more than 200 transactions during his career. His Medtrade Spring seminar, "What is My Company Worth?" explores all the steps required for selling an HME enterprise. He shared some perspectives ahead of his session.
HME News: Sixty-five percent of respondents to a recent HME News poll said they are more interested in selling their companies this year than last. What do you say to these people? What should they do to get their companies ready?
Greg Dupuis: The first question I ask people is: "What is your motivation for wanting to sell now?" If it is just to transfer what you perceive as future risk to income, you will probably be very disappointed since buyers are well aware of the current market risk and are unwilling to pay people based on what a business did last year. Buyers are concerned about future income and their offers will be adjusted accordingly. Selling a business is a complex and time-consuming process and probably the single largest transaction an owner will ever make. If someone is serious about selling, they should develop an exit strategy and get prepared. Going in without doing your homework can be a costly mistake. As your survey indicates, the market will probably be crowded with sellers this year, and buyers will be more selective, so it is more important than ever to properly position the company if an owner wishes to have a successful sale.
HME: What factors help ensure that a company receives maximum value?
Dupuis: In real estate, it is location, location, location. In a business transaction, it is information, information, information. Owners should know their businesses inside and out. Not just operationally, but also financially. Being able to answer a buyer's questions and substantiate those answers with a paper trail is critical. It also sends a message that you are a serious seller and not just window shopping. Owners need to be well prepared with up-to-date financial information, patient counts, referral trends, payer mix and employee data. From a buyer's perspective, every question is a concern, and hence, a reduction in price. The more quality information a seller can provide and the more questions they can answer, the better chance they have of receiving a higher offer that more fully values the business.
HME: What are some key reasons a seller might not receive top dollar?
Dupuis: Value is an excellent word. The easiest way for an owner to lose value is to focus on just price, which is one dimensional. Every deal revolves around price and terms. These items combine to create value. Two offers that, on the surface have the same price, say $2 million, could create significantly different long-term value for the seller based on certain terms. Major terms include such things as payment at closing, deferred payment, earn-outs, tax structure and indemnification limits. Without understanding the terms surrounding an offer, price is meaningless. Unfortunately, price is the first thing every owner wants to know and most buyers realize this. Buyers are also much more familiar with transaction terms and know how to use them to their advantage.
HME: When it comes to selling their companies, do providers have unrealistic expectations about valuations?
Dupuis: I think many owners do not know what to expect and in that sense they have unrealistic expectations. Additionally, many owners tend to value their businesses based on improper references such as what they need for retirement or rumors about what someone else sold for, rather than an impartial assessment of their business. Of the people I talk to, probably 60% of them overvalue their businesses, but more startling is that 30% undervalue them. Again, it comes down to price and terms. Owners who are willing to structure mutually beneficial transactions are more likely to receive better value for their businesses.
Greg Dupuis
Title/company: director of merger and acquisition services for Oldsmar, Fla.-based Bridge Ventures
Session: "What's My Company Worth?"
Date: Tuesday, April 24, 4 p.m.
Contact: 813-343-2214 or