Revenue cycle plays a vital role at hospitals, especially with coding and reimbursement changes that are taking place in the healthcare industry. At a financially distressed hospital, revenue cycle management can be the hinge that keeps the facility's doors open. However, dated RCM systems and services can also lead to a struggling hospital's failure.
There are numerous types of RCM firms in the healthcare industry, and many of those companies are merging with and acquiring others.
Brian Greenberg, CEO of Greenberg Advisors, a company that specializes in providing strategic advice within the RCM sector and related financial services sectors, knows the ins and outs of the RCM M&A market. He founded Greenberg Advisors six years ago and most of the transactions his company advises on range in size from $5 million to $125 million.
Becker's recently had the opportunity to catch up with Mr. Greenberg to get his thoughts on the current RCM M&A market for IT and service businesses.
Question: What does the M&A market for RCM companies look like today?
Brian Greenberg: It's an extremely active market. We track all of the M&A activity that occurs in the segment, and we tracked at least 17 deals last year among revenue cycle firms. Strategic buyers were responsible for more than 80 percent of those deals and the rest involved financial buyers, such as private equity firms. We continue to see some really outstanding companies.
Q: Will the pace of M&A activity change in 2015-16?
BG: Based on the interest we see from buyers and investors, we expect the pace to increase. The Patient Protection and Affordable Care Act and changes in security and compliance requirements are bringing about the need for new technologies and services, greater scale and more comprehensive capabilities. Growth-oriented companies are searching for ways to meet these demands and thrive in the new environment, and well-targeted acquisitions can be very effective.
Q: Is this a good time to sell an RCM company?
BG: It's an excellent time, driven mainly by the current trends at the regulatory and provider levels. Multiples are strong and there are many high quality investors in the market. For growing companies, the multiples in RCM are highly attractive for most sellers but they still leave room for buyers to invest and generate their returns before exiting. Sellers are most often valued based on multiples of EBITDA and/or revenue depending on whether they are a service or technology business.
Q: How much revenue do RCM companies need to be attractive in the market?
BG: The fact is, there are buyers for deals of all sizes. There are buyers for companies that are performing very well, and there are buyers for those that are underperforming. If anything, any size requirement would depend on who is looking to buy. Certain investors may have minimum revenue or minimum EBITDA thresholds while others may not.
Q: What are some trends you're seeing in the RCM environment?
BG: We're seeing a consumerization of healthcare, to better protect consumers and improve the services they receive. For example, as soon as a payer, provider or regulator says a change needs to be made to protect patients' information, the market has to adjust. There are some once-in-a-lifetime opportunities for companies that have products and services to meet new and expected market demands.
I'd also note the way that people communicate has changed drastically within a very short period of time. Tremendous opportunities exist in that arena for service and technology vendors to improve effective communications between payer, provider and patient.
And of course, from an M&A perspective, we're seeing a combination of consolidation strategies among financial buyers, as well as many strategic groups looking to fill in specific gaps in their business such as their client base, service offerings, IT or geographic coverage.