It should come as no surprise that the process of buying and selling businesses is affected by the general health of the economy. More expensive borrowing, market uncertainty, and shifts in consumer demand are all factors that can make both buyers and sellers wary about pursuing transactions. After an unprecedented flood of mergers & acquisitions (M&A) in 2021, M&A activity in 2022 was less stable.
As we move forward in 2023, business owners in the orthotics and prosthetics industry who are contemplating the sale of their company will benefit most from having a 360-degree view of the demand for and value of their business. After all, economic uncertainty does not mean that these business owners should put their heads down and try to weather the storm without creating and maintaining an exit plan.
Being unprepared and uninformed will almost certainly come back to haunt you when it’s time for you to hand your company off to new leadership. The right advisor will help you develop a successful exit strategy regardless of the current economic backdrop, and will help you maintain that plan through unstable times.
Buying and selling in the orthotics and prosthetics (O&P) space is particular in a few ways. Due to the industry being highly niche, the typical transaction could take up to 5 years to complete. During that time, the focus is on identifying the risks that might worry potential buyers and affect valuation.
Many of the sellers we have worked with have done a nice job of eliminating those risks by providing specifics that minimize the liabilities in the buyer’s mind. To that end, it is crucial to begin careful documentation years before the start of a potential sale. Without extensive documentation, you won’t get the best buyers, or any buyers at all.
Buyers won’t miss much while they conduct the due diligence process, so you have to be thoroughly prepared with detailed documentation of your patient base for any potential concerns that are raised. This has helped our clients in this industry avoid any nasty surprises when working with potential buyers and it provides patients with a seamless transition with the new leadership.
When selling an O&P business, it’s important to remember that the buying pool is extremely limited, because owners have stringent requirements for potential buyers. That’s because, unlike other industries, O&P is patient-focused. O&P sellers we have worked with want to make sure that the buyer possesses a high level of knowledge of the field and is acclimated in the industry, making it impossible to sell to an organization that is not in the space. As we saw with one of our own O&P clients in their recent sale, most sellers in this industry are looking for a seasoned buyer who understands their business and puts an emphasis on their patients’ interests and well-being.
Like most business owners, O&P sellers are cognizant that people are the cornerstone of their operation. With that in mind, it’s important to consider not only on the price a buyer proposes, but also how the new company ownership will fit in with their former employees, suppliers, and customers. Of course, this is especially important if the seller means to stay at the company after a sale, but even if they have no such intention, it’s important to keep in mind the needs of all stakeholders.
And the work doesn’t end once you’ve identified a buyer. During the transition period, it is essential for an O&P business to continue to show robust activity, or they run the risk of a sharp decline in patient retention. A buyer will hire a third-party accounting firm to assemble a quality-of-earnings report to validate the data that underpins financial performance. It’s a very thorough document, and that’s why documentation, and identifying potential risks ahead of a deal, is absolutely essential.
The prosthetics industry is no less susceptible to the ebbs and flows of the economy than any other industry. But understanding how transactions affect businesses and consumers is crucial for preparedness in an industry with a lot of moving parts. Through it all, it’s important to have a trusted advisor in your corner who will help you develop an exit strategy, identify potential risks, and make the right decisions for your stakeholders.
David Fergusson is Executive Managing Director of M&A and Technology Practice Leader for Generational Equity, the leading middle market investment bank for privately held businesses.
This article first appeared in Lower Extremity Review Magazine, February 2023. Click here to visit the original article.
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Consulting Group’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Consulting Group to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Consulting Group is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.