Talking points have changed. The fervor has cooled. The due diligence has intensified. Health care organizations active in the mergers-and-acquisitions market are facing a number of notable changes as they enter the second half of 2022.
Lisa Nix, leader of the transaction advisory services practice at Top 40 accounting and advisory firm LBMC, said big increases in labor and supplies costs also are mucking up a lot of initial valuations and contributing to “some really tough headwinds” on a number of deals.
“We’re seeing more and more clients wanting to wait and see for another month, another quarter [and] time is usually not your friend in a deal,” Nix said. “We’re seeing more deals die, put on pause and being retraded.”
• Those growing deal risks and rising cost of financing are pushing to the sidelines some investors, lenders as well as representations and warranty insurers. Yes, those retreats are taking away some of the froth in the market but they also remove some of the oil that makes the deal ecosystem run efficiently. That means sellers might have to go about their process more discreetly than in recent years, reaching out to a small number of possible buyers and avoiding a public auction.
Nix said potential buyers now need to be very mindful of the staff lists they’re provided early on in talks and go back for updated versions several times as negotiations progress to make sure key employees are sticking around in a market desperate for top talent. Similarly, recruiting costs that in the past were seen as non-recurring items are now increasingly being incorporated as a regular cost of doing business, lowering targets’ margins.
I’d love some calm waters but I don’t know that we’re going to get them,” LBMC’s Nix said. “It’s just not out there. Hang on and take your Dramamine; we’re in for some seasickness here.”