As the healthcare ecosystem becomes increasingly consolidated, small urgent care centers must prepare for new transaction opportunities.
In this value-based payment environment, large urgent care providers are purchasing smaller centers to manage costs and dip into additional revenue. However, it's easy for owners of these small centers to feel overwhelmed when larger entities approach them with specific transaction inquiries.
"Hospitals are calling on urgent care centers all the time, and more often than not, doctors are not prepared for that call," says Luis de la Prida of Vertess, an M&A advisory firm that specializes in small to mid-market companies. Mr. de la Prida spoke with Becker's Hospital Review about how urgent care centers can pursue mutually beneficial business deals.
Here are five steps urgent care centers should take when negotiating terms.
1. Make time for preparation. Mr. de la Prida says there are five things urgent care centers should do to get ready for a sale. He compares the preparation to a typical physician visit:
- First, urgent care centers must "schedule a checkup" to determine the status of their business' "vital signs" — or its profitability, practice profile and staff continuity, he says.
- Second, Mr. de la Prida says centers should "document the chart." For urgent care center owners, this means locating documents like year-to-date financial statements, payer contracts, tax returns and payroll reports.
- Next, he says centers must "perform diagnostics," or pinpoint the value of the urgent care center.
- The center should then "recruit a team," or a transition group that consists of a broker, M&A adviser, attorney and accountant, among other specialists.
- Lastly, Mr. de La Prida says centers should "start the plan," and review goals to determine the best path forward.
2. Be aware of who is buying. Mr. de la Prida says it's imperative for urgent care center owners to look beyond the first hospital or organization seeking a transaction. He says "a key part of negotiating is figuring out the [buyers'] goals" so a center can position itself within a deal that adheres to its own ambitions.
Mr. de la Prida noted hospitals and large urgent care buyers acquire smaller urgent care centers to meet consumer demand and create a different revenue stream. If the smaller center wants to relieve administrative burden or seeks greater financial stability, transactions with larger buyers may be an option. Other buyers, like payers, can be useful for controlling the cost of services.
3. Discern key steps in the M&A process. Mr. de la Prida says the M&A process includes six key phases: exploratory, data gathering, marketing, negotiation, due diligence and closing. He says understanding and evaluating exit options, assembling all vital documents, conducting buyer research and engaging with multiple buyers are just a few key steps to successfully negotiate terms.
4. Identify transaction terms. When urgent care centers are preparing to sell, often the first question owners ask is, "How much can I sell for?," Mr. de la Prida says. However, he cautions the answer to this question is complex, usually a range and "not necessarily the most important item."
Instead, he advises centers to think about other contractual terms, such as accepting a lower purchase price in exchange for higher salary benefits. In addition, he says it is important to understand the transaction's structure, whether it be a merger, stock purchase or cash purchase.
5. Negotiate like a "pro." Mr. de la Prida says nailing down terms and knowing the price at which an urgent care center is comfortable selling are important for negotiations. Although centers need to "yield strategically" when it comes to negotiating terms, Mr. de la Prida also suggests issuing the first offer, if possible.
"A lot of the time the person who throws out the numbers sets the tone" of the deal, he says. Mr. de la Prida also says center owners must remember it's "OK to walk away" from a transaction.
For more information on negotiating terms for urgent care center sales, click here to read Mr. de la Prida's article comparing urgent care centers and larger healthcare organizations to "David and Goliath."