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‘Grooming’ is preparing the business for exit. Corporate purchasers are increasingly looking for businesses with sustainable profitability and property assets in the right location with good local profile. Some of the key areas to consider are outlined below:
- Can areas be identified where cutbacks could be achieved, without damaging the short-term profitability or the quality of care provided? However, cutting back on investment in facilities, for example, may have a long-term adverse effect on the performance of the business. Careful monitoring of levels of expenditure during the run up to a sale can enhance profitability and value.
- In addition to reviewing the levels of expenditure, it is important to maximise income. The timing of fee increases can impact considerably on results. Every effort should be made to maximise occupancy, not only to increase revenue but also to avoid any perception of difficulty in filling beds.
- In general, one of the main aims of the process is to reduce uncertainty in the purchaser’s mind. The less uncertainty there is, the higher the multiple applied to the business profits.
- Legal review: contracts and policies, the general regulatory environment and TUPE issues.
- The quality and reputation of the business will significantly affect the multiple applied by the acquirer. Make the most of awards won by the business or employees, with positive press coverage.
- If trading as a limited company, minimising the working capital in the business.
The grooming process takes time, but can have a significant effect on value. Forward planning can add value to your business in real terms.
Our specialist team, who focus on financial due diligence (investigation) for acquirers, highlight the most common reasons for price reductions as being:
Issues surrounding staffing ratios and costs associated with this, perhaps pertaining to the vendor’s involvement.
- Topical issues such as the rise in staff costs being experienced due to increased holiday entitlement.
- Poor accounting and tax records, with out-of date statutory and/or management accounts.
- Impact upon financial performance of discretionary spend for items such as repairs and motor expenses.
- Poor working capital management.
Part Five - Market Place - Health Check