Better People Plan, Better Deal
Join Paul as he explains how preparing your management team for growth after the sale will dramatically increase the value of your deal.
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. I am Paul Martin, founder and president of Martin Healthcare Advisors and Martin ABA Advisors. And I'm excited to come to you today and talk about the third part of our series. This series is focusing on a market that has returned. There is a very competitive market out there for physical therapy businesses in 2024 and we want to make sure that we put your company to the very top of that list or as we call it draft board.
Now if you recall the first episode we talked about we highlighted on choosing the right attorney. In the second episode we focused the critical role of your accountant. Today we're going to go internal and we're going to explore your people plan for your business which will make sure that your leadership is ready and aligned for not only growth to the acquisition but growth through and post the acquisition and that is absolutely imperative for you to get the best deal out there. So what is the importance of a strategic people plan?
Well, look, the goal is to show your company, to show the folks in your company that your leaders are committed to grow the company after the acquisition. And just as importantly, it's also important that you are showing the acquirers, that your leaders are not just committed to growing to the acquisition, but through and beyond. A strong leadership team will absolutely increase what we call buyer confidence. And what the outcome of buyer confidence is, it's going to lower your risk. And when you lower your risk, you increase your value.
So how do we do this? H how do we show a buyer or a set of buyers that we are truly a growthoriented company with people that are on board for that growth? Well, first how about a table of organization? You know, a table of organization that needs to be designed for growth. And what does that mean? It means that each position within that team is clearly defined as not only staying within, you know, the time frame where we are now, but where are we going?
Our table of organization needs to be movable. It needs to continue to evolve. And so when we look at a table of organization that's evolving an acquirer looks at that and says you know what they are thinking ahead and planning for growth after the sale not just to the sale and as I said that will absolutely gain buyer confidence. Another key is how do you evaluate the performance of your leaders? Consider, you know, implementing systems to assess how well your leaders are meeting company goals and objectives.
Remember, the rank and file staff have very specific job responsibilities, but your leaders need to be informed and also need to be aligned with the major company goals and objectives and how well are they performing against those objectives. It can't all be you. It has to be a team. Certainly, regular performance reviews will show that everybody is on track and accountable. But in addition to that again looking at your company and how your company has grown telling that story of that growth and most importantly how your staff participated in that growth will really go a long way for an acquirer to see how your team is built for the future.
Also again how do you define your roles and responsibilities? You know, clearly defining each one of your leaders and their specific roles and responsibilities and then coming back to them each year with a performance review goes a long way to be able to show that your leaders are in fact not only engaged in the big picture but also engaged in each individual and really each individual task. Task that they're being asked to do and how they are performing within those tasks. You know, another strategy that I really believe you should consider, we've seen this with many successful companies that have not only grown to a sale, but well through and beyond a sale, is to actually establish a leadership group.
And this is a leadership group, you know. So, so if you're a six to 10 clinic company, that leadership group could consist of your clinic managers, your marketing folks, maybe an area director. So it could be a group of six to eight people. If you're bigger, it might be more. And that leadership group should meet regularly at least once a month to discuss the company direction as well as their performance as it relates to the company direction. Your leaders need to be very clear on the long-term goals and how they actually align with those goals.
This will assure that when an acquirer comes in and looks at your company, and I use this word a lot, they see alignment of your leadership team. We worked with a company in New York, they ran a leadership group meeting once a month for five years. And when I tell you when the acquirer came in and saw the cohesiveness of that leadership team, I'm going to tell you it increased the multiple at least a turn, maybe a two, maybe a two-turn multiple. But very impressive when they saw the strength of that leadership team.
We've also seen the opposite take place during due diligence. They may request to talk to some of these leaders and when they get a leader on their own all of a sudden they see that the leaders really aren't aligned and we've seen deals actually blow up because of that I think it's important that a as you're looking at a potential acquisition in the future partnership and you're looking to grow through that you really need to start taking a very close look at your leaders and at the large acquirers and make some decisions, at least some early decisions on who you think may need to transi potentially transition out of the company for the company's long-term success.
Now, I know this is a very difficult subject and that's why I think it's important for you to think about these things before an acquirer comes in. We get asked this question all the time. Will an acquirer keep all of our people? And in most cases, they do, but there are in some situations duplicative roles that will be duplicative depending upon the partner you may choose. And for you to have pre-thought that through, maybe consider a succession for that person to another another region or another cost center for that acquirer.
Again, we're never looking to lose people, but if you have thought that through and when an acquirer has that discussion with you, if you have already thought that through and you have some potential backup plans, that's really impressive to an acquirer. Real impressive. And so, again, we're not in this game to lose people. But sometimes, again, there are very duplicative roles and those have to be addressed. The other thing we have to address with our people plan is we have come across situations where there are significantly overcompensated staff.
And that means a staff member that is in a role that when that role is equated to a role with a larger company, they could be compensated being compensated double what a typical person in that role is being compensated. Now there are and that's a very sensitive situation. So we really need to handle this delicately. I mean you got to put your gloves on to handle this situation. But there are ways to compensate that person. There are ways to look and not make this fully the problem for the buyer and for the acquirer.
Again you want to be at the top of that acquirer list. And when an acquirer sees a company with multiple folks that are way overly compensated, dealing with that and dealing with the people side of this is really tough. So there are situations where we have worked out possibly having some of those folks enter into equity positions on the other side of this if they are that important in the company. So they could do a pre-equity purchase before the sale. That way they would roll equity forward.
That would give them an opportunity to make up that compensation. Also taking money out of the pot that you as owners get and providing that to some of those overcompensated individuals to give them some time to continue in their roles. Hopefully be able to continue to move up and prove themselves over time. So there are multiple options and again we've dealt with every single one and so you just want to make sure that has been addressed and as early as you can do that the better.
You don't want to make these all problems for the buyers. So we've really dug pretty deep into what again what we call the people plan. And you know, as you look at what an acquirer is buying, you know, the hard cold facts is they're buying a stream of cash flow, but who is driving that stream of cash flow? It is the people in your company, and I know I use this word a lot, but their alignment, if an acquirer can see their alignment, that cash flow can continue to grow in the future.
There's going to be lots of room for your leaders to have lots of success. And the people plan we believe is absolutely critical because we are a people industry. You know, you want to create an atmosphere of excitement when you're looking to go down the road of potentially partnering with a larger company. We've seen companies that actually on the closing day they are giving a toast to their staff for the opportunities that they have created for their staff in the future. You know, if you have any questions about how to address and to build your people plan, click below and let's talk. Thanks and have a great rest of your Friday and a great weekend.
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