Suzie Hoitink, Senior Consultant at HTNK Consulting, uncovers what private equity firms, publicly listed corporates and private companies really want from a new acquisition in the cosmetic industry.
Thinking you’d like to sell your business at some stage? If so, who is likely to be your buyer, what are they looking for and what can you do now to set yourself up for a successful sale?
Here’s what you can do to make your practice attractive and what you can expect from the process – from someone who’s been through it.
People often comment that we were lucky to have sold the Clear Complexions Clinics. Luck may have had a tiny part to play, but forethought and planning is how we sold to an ASX-listed company. It was no coincidence; we knew who our likely buyers would be. We had been through two rounds of due diligence with private equity in the years prior to the sale, gaining invaluable experience in what buyers wanted and how to set the business up for a successful sale.
‘We’ is my husband Alex and myself. Team effort all the way. Now as consultants, we help others go down the same path we did, to realise their dream of financial independence and to know they got their ‘worth’ for all the effort, worry, sacrifice and risk.
Our industry is attracting a lot of interest. Pre-pandemic, there were a few major plays but now there is unprecedented interest in consolidating single practices and small groups. It’s an opportunity if you are ready to take it.
As a bespoke, doctor/nurse-led practice, your buyer is unlikely to be from a franchise laser chain model. It’s possible, but unlikely. It may be that your buyer comes from within, a managerial buy-out from a current colleague, but again unlikely. If you are serious about selling, look to where you have an opportunity to get a greater multiple: from the big end of town. This includes private equity firms, publicly listed corporate companies or larger private companies looking to buy up the best and brightest in our industry.
So, what are they looking for and how can you make yourself an attractive acquisition prospect?
1. Your People
You as the principal are the business’s greatest asset and yet its biggest risk in regard to a sale, particularly if you generate the lion’s share of the income. I learned early on to mitigate that risk by developing a performance management program that built a team of high performers around me, equipping them with the clinical and consultative systems to drive up client frequency and spend and deliver consistently excellent clinical outcomes. Those systems limited ‘key person’ risk so that when and if they left the business pre or post sale, the impact was minimal as another clinician could take their position without a drop in productivity.
It seems obvious to say, but work with your profitability in mind. Times of growth in any business can strip out profits, so timing is everything. You want to demonstrate consistently attractive – preferably increasing – earnings that benchmark well in the industry, together with a stable cost base, resulting in a significant EBITDA. This is largely what your sale price will be determined on.
Buyers look for stability in the team; a consistent team with long tenure plays a crucial role in supporting recurring revenue and is reassuring for any prospective buyer. A high turnover of staff is a red flag. Developing effective retention strategies (and no, that isn’t paying them big incentives) are critical to any practice’s success in the short term and will be what buyers are looking for when performing due diligence on your business.
‘Cultural alignment’ is of paramount importance to buyers for one simple reason: if key team members do not feel aligned to the new entity’s culture, vision and values, they are unlikely to have the will to endure the change management process. At Clear Complexions, our team was crystal-clear on our vision and values, built on advocacy, empowerment and professionalism. This meant when Vita Group Pty Ltd bought us, the announcement and subsequent change process was met with that same professionalism and positivity. They went on the journey with us.
2. Your Financials
It seems obvious to say, but work with your profitability in mind. Times of growth in any business can strip out profits, so timing is everything. You want to demonstrate consistently attractive – preferably increasing – earnings that benchmark well in the industry, together with a stable cost base, resulting in a significant EBITDA. This is largely what your sale price will be determined on.
A healthy EBITDA starts with having sound business intelligence. There are crucial metrics in our industry that when reported and appropriately acted on can turn the dial up exponentially. If you don’t know what metrics drive up productivity and profitability in your practice, then get some help, fast.
Lastly, have ‘clean financials’, meaning your financial information is presented with the principal’s salary adjusted to the market and any personal expenses removed.
3. Your Database
Large databases are vanity; active databases are sanity! The truth is that even practices that have been around for 10+ years likely have only small active databases. Buyers are looking for sources of recurring revenue where a high proportion is from repeat clients from an established client base. If you want a large active database, then be active with them. We develop database strategic plans for our clients’ practices whereby we employ an effective combination of thought leadership communication and multiple marketing techniques. We create a community that clients don’t
What will a sale mean for you?
‘Transitional’ is the best word I can use to describe it. It’s a staged process. Yes, initially there is money to be taken off the table, but rarely all of it. Earn-outs are necessary to keep you, the key principal, involved and positively engaged.
The earn-out period is a tumultuous period of change; some positive, some negative, but inevitably marked by an inescapable loss of identity. I coped better than some I know in similar situations, but it wasn’t an easy journey.
You will have a restraint period when you leave post earn-out. ‘Who cares, if you get the cash?’, I hear you say, and rightly so if you intend to retire to your deserted island. However, not being able to do what you know and love for a significant period of time is worth a moment of consideration.
If I sound doomsday, I’m not. We absolutely made the right choice at the right time. It just wasn’t always smooth sailing, but it can be a ‘cake and eat it, too’ situation if you can manage to orchestrate it.
In my experience, principals in our industry don’t just sell when they want to retire; they look to sell when they are tired of managing the risk. Whether you want to sell now or in the future, retire to put your feet in the sand or reinvest and push on with your career without the daily drama, these opportunities are out there if you know how to prepare yourself and how to connect with your prospective buyer. Reach out and we’ll help you find your way. AMP
For more information, contact Suzie at suzie@htnk.com.au or call 0477 577 233.
