Thinking of selling your business or practice? Here are the advantages and disadvantages of each option

Competitive buyer 

A competitive buyer operates in the same or similar market as the seller. These buyers often acquire businesses for strategic advantage, such as expanding market share or eliminating competition. They can be single-location operators, or multi-location businesses, but they’re generally smaller than strategic buyer or consolidators.  

Advantages 

• Strategic benefit: A competitor may see unique value in acquiring your business, such as strengthening market control, removing competition, or preventing a rival from making the acquisition. This can lead to higher valuation.   
• Familiarity: Since the buyer already knows the industry, the sale process can be smoother and more efficient.  
• Synergies: Shared overhead costs across multiple locations can create efficiencies and reduce administrative burdens during the transition.
• Independent ownership: Competitive buyers are often considered an independent which is sometimes perceived as a positive from a culture and fit standpoint.

Disadvantages 

• Confidentiality: Sharing sensitive information with a competitor, including pricing, staff compensation, and other proprietary knowledge, requires careful handling. Staging the release of information and synthesizing sensitive details becomes critical. Operating under a strong confidentiality agreement or NDA is essential. 
• Financing: Competitive buyers typically have better financing options than internal buyers, but they may lack the deep financial resources of larger consolidators. Vendor financing may still be required.  
• Staff retention concerns: Employees may not feel comfortable working for a direct competitor, potentially leading to a turnover. 

Strategic buyer or consolidator 

A strategic buyer — also known as a consolidator, roll-up, or corporate buyer— is usually a larger company or competitor in the same industry.  Their business model focuses on acquiring and integrating businesses to expand their market share, diversify services, and gain operational efficiencies.  

These buyers normally own multiple locations, often across different regions or provinces. They follow a structured acquisition process and are often backed by private equity.  

Advantages 

• Synergies: Strategic buyers can leverage existing resources, increase purchasing power, and specialized services, to create additional value. 
• Certainty of close: These buyers generally have strong certainty of close. Meaning, they usually have dedicated capital and credit facilities for acquisitions, ensuring a higher likelihood of completing the deal. 
• Deeper resources: Their access to greater resources can significantly enhance patient and customer experiences.  
• Equity participation: Some strategic buyers offer sellers the option to retain partial ownership, linking their compensation to the future success of either acquired business or the parent company.  
• Faster Growth: The merged entity may experience accelerated growth through economies of scale.  
• Valuation certainty: Strategic buyers often use standardized valuation metrics, reducing negotiation challenges and ensuring fair market value.  

Disadvantages 

• Integration Challenges: Merging operations and cultures can be complex and time-consuming. 
• Loss of Autonomy: The original business may lose some independence and culture.  
• Deal structure: Deal structure may be complex, especially in situations where there’s future equity participation. While this may be a financial benefit, understanding your equity rights need to be vetted and understood as it relates to valuation, liquidity options, and shareholder rights. 

Private equity groups 

Private equity (PE) groups invest pooled capital from high-net-worth individuals and institutional investors to acquire and grow businesses. Unlike direct businesses operators, PE groups do not typically manage the businesses they acquire. Instead, they rely on existing management teams and often support strategic buyers or consolidators.    

Advantages 

• Capital infusion: PE groups have substantial financial resources to facilitate acquisitions. 
• Growth opportunities: They may help the businesses expand through future acquisitions or strategic initiatives. 
• Aligned interests: PE groups rarely acquire 100 percent of ownership. Instead, they partner with existing shareholders and acquire majority control, allowing businesses owners and management teams to share in future growth. This is deal for owners who want to stay involved.    
• Taking chips off the table: The option of selling only part of the businesses can be enticing for some owners — a significant percentage of which have the bulk of their net worth tied up in their company. PE groups offer the owner the ability to pull out some wealth that has been created, while continuing to drive the future growth of the businesses.  

Disadvantages 

• Size: PE groups will target larger companies with a view to consolidation and growth. A PE group will rarely acquire single-location practices unless it already has a platform investment in a specific industry, generally making them a viable option only for sellers of a large-scale, up-market group of businesses. Instead, a seller should consider strategic buyers or consolidators as a PE-backed option, which can sometimes mimic some of the advantages of a PE deal.  
• Time horizon: A PE deal will typically see the vendor carry on for a lengthy transition period until the next sale or liquidity event. This may not be the right fit for some owners who are seeking a more immediate full exit.  
• Control: Some owners can struggle with continuing to drive the growth of the businesses without owning it outright.  

Conclusion  

Choosing the right buyer for your practice involves assessing your priorities and long-term goals. Each option has its merits and drawbacks, and deal valuations, structure, and terms — and each can look drastically different depending on the type of buyer you approach.  

It’s crucial to align your divestiture approach with your vision for the future of your business and your personal objectives. Each of the types of buyers explored above have different approaches to the following deal parameters: Valuation, transition length, ongoing equity participation, next liquidity event, deal structure, future upside, control, due diligence, among others.  

When considering a sale of your practice, consider these items to ensure the best outcome possible: 

• Speak with a divestiture advisor early. The sale of your practice will take many months, and most purchasers require a post-closing continuation of employment transition. 
• Writing down your most important objectives in a transaction to ensure the right buyer audience is targeted. What is important for one seller, may not be as important for the next. Comparing options across a range of different types of buyers is sometimes the only way to ensure the best fit and transaction parameters.
• Depending on your corporate structure, you can maximize your after-tax proceeds by taking certain steps years in advance — you can reduce your risk of a tax surprise catching you off guard. 

Retaining an advisor to assist you through the divestiture process also allows you to focus on what you do best: running your practice. MNP’s Corporate Finance group has a wealth of experience in the health care and professional services space, with advisors who are well-versed to manage the divestiture process to ensure you transition on the best terms possible.