I read a Linkedin post recently from a clinic owner talking about selling their business. It was thoughtful and honest, but it showed something I see a fair amount, owners go into M&A completely unprepared, get a bloody nose and then come out the other side convinced buyers are sharks.
I don’t think that’s what’s happening. I’ve sold a business myself and I do a fair few intros between clinic buyers and sellers, so I’ve seen this from both sides of the table.
One of the concerns in the post was that buyers manipulate EBITDA during due diligence. Let’s turn that around. Imagine you were buying a clinic tomorrow with your own money. Would you want to know if the accounts were accurate, whether the profit is actually sustainable or propped up by something unusual, and what happens if the owner disappears next month?
I’m sure you all got surveys done when buying your house as well!
The EBITDA thing specifically. Most of the time the buyer isn’t manipulating anything, they’re trying to work out the maintainable profit of the business, because owner managed businesses are stuffed with things that need adjusting. Personal expenses through the company, family on the payroll for jobs that may or may not exist, one-off legal costs, odd rent arrangements, income that won’t repeat. None of it is sinister, it’s just working out what a normal owner would actually earn from running the place, which is exactly what I’d want to know if I was writing the cheque. And honestly, if a buyer can run rings around your EBITDA in due diligence, that says more about the state of your accounts than it does about their ethics.
Earn outs got a kicking too. Some are dreadful, some are brilliantly structured, and the existence of one tells you nothing either way, it’s the fairness that matters. Do the incentives line up, are the targets actually achievable, can the buyer influence whether you hit them?
And FYI, this is why earn outs exist in the first place. You think you’re selling twenty years of hard work but in reality the buyer is buying the next 10, so when you tell them the next three years will be brilliant, they’re using an earn out to say “prove it”.
And remember who you’re sitting across from. Most clinic owners sell one business in their lifetime, some buyers have done dozens, sometimes more. They know what they’re doing.
Now let’s talk about the sellers, because honestly, this is where most owners let themselves down.
Most owners start learning about selling when someone makes them an offer. That’s insane. You wouldn’t treat a patient having skim read one blog on anatomy, but people will happily negotiate a seven figure deal on the back of a podcast and a chat at a conference. Valuation, tax, buyer types, deal structures, due diligence, these are things you should understand well before you sell while there’s still time to shape the business around them.
Next, the buyer sees an asset. You see twenty years of Saturdays, staff you’ve known forever, patients you’ve treated since they were kids, your identity. The buyer isn’t emotional but you are, and an emotional negotiator up against an unemotional one is giving away points before anyone’s said a number.
Owners also overestimate their own business, almost without exception. Every owner thinks their staff are unique, their patients are loyal, their systems are special and their reputation is exceptional. The buyer has looked at 50 clinics and heard every word of it before. I promise you, your clinic is less unique than you think.
People confuse price with value too. They obsess over the multiple. “I got 7x!” Okay, but what were the terms? You can get 8x and hate the deal or 6x with every penny on completion and sleep like a baby. The headline multiple means very little, it’s just the number owners use to show off at conferences. Ben (HMDG owner) recently said, I’d pay £10m for a clinic if I can pay it at a pound a week….
Most buyers aren’t hunting for reasons to chip the price either. By the time they’re deep into due diligence they’ve spent months of work, legal fees, accounting fees and management time, and the last thing anyone wants is to kill a good deal. Which is also why good preparation gives you leverage. Immaculate accounts, tidy contracts, clean HR, numbers that reconcile, due diligence becomes boring and boring is exactly what buyers pay well for.
It’s an interview both ways, don’t forget. You’re deciding whether to sell, they’re deciding whether they want your clinic at all.
Now, before anyone says “but I’ll never know as much as the buyer”, you’re right, you won’t. That’s why you hire people who do. A good corporate lawyer, tax adviser and M&A adviser level the playing field. You negotiate once in your life, professional buyers negotiate every week, and advisers exist because experience compounds, not because you’re stupid.
You’re about to negotiate the biggest financial transaction of your life. Why would you spend less time understanding it than you spend choosing your summer holiday?
Really good businesses rarely end up trapped by one difficult buyer anyway, because they have options. Competition fixes almost all of this. When four buyers want your clinic the conversation stops being adversarial, and you stop caring whether one of them is playing hardball because there are three more behind them.
The biggest lesson I’ve learned watching deals is that buyers don’t set the value of your business, the market does. If five serious buyers all land at roughly the same number, that’s probably what your clinic is worth, however much it stings. Buyers aren’t sitting in a room somewhere agreeing to lowball you, it’s just price discovery.
Buyers aren’t sharks. They’re doing exactly what you’d do if the money coming out of the bank account was yours. The real mistake isn’t meeting an experienced buyer. It’s turning up to your biggest ever financial negotiation having done less preparation than you did before buying your last car.
And if you’d like to read about my own experience of selling, I wrote about it here: https://www.linkedin.com/posts/mjschumacher100_businessexit-exitstrategy-entrepreneurship-ugcPost-7246614739135393792-hLHH/
