Many factors can influence the way a buyer evaluates a medical transportation business for sale. As transportation business owners develop their understanding of the value drivers that will matter to prospective buyers, they will position themselves to attract higher offers when they take their business to the market. The following value drivers are a handful of many that may be important to a buyer.
1) Life remaining in contracts
The life remaining in a business for sale’s existing contracts is important to a buyer because it correlates directly with the stability of the revenue stream. A business whose customer contracts have an average remaining life of 3 years presents considerably less risks to a buyer than a business whose contracts have an average remaining life of 1year. Fewer transaction risks usually translates into a more attractive sale scenario for the seller. Of course, the opposite is also true. Some buyers calculate offers based on a multiple that closely ties to the average life remaining in the existing contracts. As you consider the timing of your medical transportation business sale, it is important to understand how this value driver will play a role in your exit strategy.
2) Age of equipment and costs of replacement
Replacing and updating equipment is part of every transportation business. Every buyer understands this. However, if a buyer recognizes that he will be required to replace or update a disproportionate amount of equipment in order remain competitive shortly after a sale, it will significantly influence his attitude toward the deal. To avoid this, stay on top scheduled maintenance regardless of your plans to sell and consult an industry expert for advice on managing your fleet replacement needs leading up a sale.
3) Customer Concentration
Customer concentration is important value driver for buyers. Buyers want to purchase a business that has established accounts from which they can build upon. However, when an account or small group of accounts is responsible for a very large portion of the overall revenue, it can influence a buyer’s approach to buying your business. It is not a deal breaker, but sellers should be aware of the fact that certain provisions must be considered in both the sale price and deal structure to account for the substantial risks associated with heavy customer concentration.
4) Management Depth
When a buyer purchases a medical transportation business, he is also buying people. When there is multiple layers of management talent included in the sale, buyers gladly pay for it. Demonstrating that a business for sale can function without the primary owner is extremely valuable to a buyer because it greatly reduces the risks associated with the sale.
5) Pricing Strategy—Profitability of existing contracts.
When a business’ pricing strategy allows the company to perform at a very profitable level, it is attractive to a buyer. It can take years to condition a customer base to pay premium prices. This built in value will be acknowledged in the context of a sale. If a business employs a less profitable pricing strategy, the business can still be valuable to buyers if the business achieves profitability through a high volume of customers.
As stated, many factors can influence how a buyer evaluates a medical transportation business for sale. As transportation business owners develop their understanding of value drivers they will position themselves to attract higher offers when they take their business to the market.