Opportunities for Action: Marquee Companies Can Take Advantage of Acquirers' Appetite
Paul revisits his interview with Larry Benz of Confluent Health on how acquirers approach marquee companies, showing your growth runway, value creation plans, and the second bite of the apple.
Full transcript
Generated from the episode audio and lightly edited for readability.
Good afternoon and welcome to another episode of the Martin Rehab M&A advisory. Today we're going to take a look back one week to our interview with Larry Benz and we're going to discuss opportunities for action that you can put into place now. As you recall, Larry is the CEO of Confluent Health. You know what we discussed with Larry was how does Confluent approach a partner or what we would consider a marquee company. Now, marquee companies certainly come in different shapes and sizes, but typically this is a company that has somewhere 10 clinics or more, somewhere about a million and a half to two million of EBITDA.
These are some of the large more regionally focused companies in the country and we discussed with Larry how Confluent approaches these very unique companies and one of the keys that Larry brought up when he approaches a deal like this is he wants to understand what is their runway. Well, let's examine that. When he speaks of a runway, it is how much can that target company actually grow, you know, what support and what support do does Confluent as the buyer have to provide in order to execute on that growth?
That's what I'm fairly certain he means by a runway. And you know, I'm going to tell you that this is an essential piece of a marquee company getting the best deal and that is to clearly articulate that runway and not just verbally but with words, charts and graphs. Our experience is that these are very unique transactions and require a different approach from the advisor as well as from the acquirer. And we work with our clients to have a wellthoughtout plan for their growth to show that runway and that this will drive enormous value and needs to be presented to all of the potential acquirers out there who are under confidentiality and are interested in your company.
You know, one of the benefits to private practice business owners with companies like Confluent is that they now have a community of business owners to collaborate with. This is something that we talk to every business owner that approaches us. One of the things that's missing from their dayto-day is the ability to collaborate with other business owners. And this is many times a benefit that business owners don't realize is out there for when they would actually partner with a larger company. They picture being with a larger company as very centralized and controlling.
Marquee companies especially are seeking collaboration and support, not domination and restriction from new ideas. And so we believe a big question that needs to be asked by a marquee company to an acquirer is how are you going to help us improve our reimbursement? And this is something that Larry brought up. And this is key because as a partner moving forward, you are going to benefit if your reimbursement is improved by that acquirer. You know, as we examine marquee companies and we examine companies like Confluent, one of the things and one of the words that Larry used in our interview was he believes that you need to harvest and facilitate these companies to bigger and even better things.
This is huge for marquee company business owners and it is unique for each company. So it's not the same for each marquee company on how you harvest and facilitate these companies to bigger and better things. Another gem that came from Larry is we talked to Larry about what is value based on how are these companies valued and he was very clear cash flow margin and growth. So we talk about IBITA and risk and when he says cash flow that's that IATA margin does describe you know what's the percent margin that a company is showing and growth margin and growth are big de decreases in risk.
If a company is growing risk goes down to an acquire. Have you proven these aspects for your company to be bright? Do you have a bright cash flow for your future, a strong margin, and can you clearly show that growth as a marquee company to any of the acquirers in this industry? You know, for marquee companies, the story of each of these factors, cash flow, margin, and growth really needs to be told. And again, the story needs to be told in words, graphs, and charts. You know, another key point that we see for marquee companies is that and Larry brought this out very clearly.
If the owner wants to walk away, there could be a significant value difference than if an owner is wanting to stay in the future and stay as a equity partner in the future. The value as Larry described it is in the people and it is the people who actually write these checks to invest in your business. What I mean by that is the people who write these checks to invest in your business, they believe that the people are integral to leading the business going forward. You know, Larry also discussed that discussed that with marquee companies, it's imperative to fully understand the value of your equity in a deal where you would have equity moving forward.
Well, with these large companies, these acquirers, that becomes very complicated and should not be oversimplified. And this is especially complicated as a marquee company. So that needs to be made very clear as you are looking at all of the companies out there in this current market. You know, it's really important to create and Larry described this a value creation plan. That is what we do when we prepare our companies for this market and then deter determine who will give you the best opportunity to get there to actually create that value that you are planning out into the future.
Who's the best company out there to get you there? You know something that Larry said and we have always maintained this. He said that if you were to sell 70% of your company and maintain a 30% interest going forward that with just basic growth over a 3 to five year period that 30% when you use the resources from a large company that 30% should have a greater value than you received for 70% of the company when you first sold it or you first partnered. And we find this to be the case especially with marquee companies that are already on a growth curve when they're acquired was very interesting and we talked to Larry about creating plans strategic plans and this goes to again companies that are looking at being more of an umbrella and a catalyst to a marquee company and Larry described that they have 30 unique strategic plans within Confluent.
Again, not one for the entire company, but each partner has a unique strategic plan. And this is huge for that second equity event that we just described with that minority interest going forward and when you would sell that minority interest in the future. Many times that's called the second bite of the apple. You know, as always, Larry has provided us with many gems and things that we can put into action today. And I would welcome any of you out there who are considering maybe potentially testing this market this year or even next year or further into the future, click below and let's have a conversation. I look forward to talking to you in the very near future. Thank you.
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