Thinking about selling your UAE healthcare business?

There’s no doubt it’s a big step: If you’re serious about the possibility of putting your healthcare business up for sale, then you are starting out on what could be a five-year journey.

And like any journey, it’s all about preparation.

Of course there will be challenges along the way, but with a proper evaluation of the key factors that determine your strategy of sale, it is certainly a viable option. By examining the state of the market, overall industry outlook, projected growth – as well as understanding your potential buyers – you can put yourself in the best possible position for a successful sale.So let’s have a look at some of the key points to keep in mind when preparing and then executing a sale.

Selling your UAE healthcare business: Industry overview 

Right now the outlook for the healthcare industry in the UAE is positive. Valuations on businesses in the sector are hovering around seven to ten times EBITDA (earnings before interest, taxes, depreciation and amortisation) for a large, sustainable business (one that is not reliant on one or two doctors) and five to six times EBITDA for a smaller, but well-positioned enterprise. Sale valuations can of course fluctuate, and it remains to be seen whether developments in the near future will have a detrimental effect on the market.

There are challenges, however, not least those connected with technology – particularly data management and the delivery of online health services. Perhaps even more pressing is the shortage in adequately skilled staff – the good news is that the government has recognised this and plans are in place to increase resources in this area over the next few years.

Looking forward, by 2020 the UAE healthcare industry is on target to exceed $19.5 billion (Dh71.56 billion) with 12.7% annual average growth. Beyond the current numbers, the UAE government has demonstrated its commitment to creating world-class healthcare infrastructure to rival anywhere in the world. Even taking Abu Dhabi alone, we find nearly 2,000 different medical facilities (and there were licences for over 170 new facilities granted in the first half of 2015 alone).

Who are your buyers?

Essentially here we’re looking at either trade buyers or private equity groups.

Trade buyers are normally larger operators from the healthcare industry aiming to expand their network across the UAE by channelling primary care patients into their hospitals or speciality centres.Private equity groups might be seeking to accrue a number of facilities at competitive prices, building a network that can later be sold to trade buyers or taken to market with an IPO to generate a profit.

Whichever of the two groups your buyer falls under, it’s vital you remember that their priority is to get a deal that suits them; they are not out to do you any favours (even if they say they are). That’s why for you as the selling party, it’s important to understand the potential buyer.

Preparing for sale: Building your team

How you prepare for meetings with the interested parties is critical.

To start with, it’s a good move to have a sell-side advisor who facilitates a friendly yet professional approach when introducing third parties to your business. Equally important is having an experienced negotiator on your team when it comes to discussions around valuation, warranties, earn-outs, drag, tag, as well as put and call options. Because if you’re dealing with a private equity firm, they will certainly have a shrewd negotiator who knows just how to leverage a great deal for their employers. Having your own negotiation specialist that is capable of matching them step-for-step is key.

Getting the sales process underway

Before you start to plan the sale, getting audited accounts from a respected audit firm is a must. The accounts and any audit should be looked into a couple of years prior to putting the business on the open market. Knowing the financial operations of your business and how they might affect any sale is the kind of information you need at your fingertips.

Many UAE-based entrepreneurs are reluctant to keep audited accounts. In this case, the buyer will go through the process of re-assembling them as part of their due diligence process. The assumptions that will be made in that process will be in the buyer’s interest and not yours as the seller. So it’s a wise move to cover the cost of an audit and work with your accountants beforehand. Doing your own due diligence will empower you as the deal progresses.

Bidding and structuring the deal

Bidding can take many forms. If you’re lucky enough to get rival bids competing with each other, you’ll have immediate visibility over the range of prices that people will consider paying – and you may attract a bid that is deliberately high in an attempt to blow the other competitors out of the water.

Whichever way your sale goes, once the bidding is complete and you have agreed the price with a buyer, there are steps to follow to ensure things move smoothly and you protect your reputation as a good seller – particularly important if this is likely to be just one of many sales that you eventually hope to make.

Any new owner will be understandably wary of buying in entirety and then watching as the outgoing owner and business expert leaves, taking valuable knowledge and experience with him or her while the business underperforms or does not meet up to the ‘as advertised’ standard. With this in mind, your eventual buyer may also want to keep you on board as well – adding to the contract that you stay on at the company (perhaps for a specific amount of time) in some capacity post-sale.

There may also be some kind of earn-out aspect of the deal, whereby you as the seller receive between 60% and 70% of the agreed price with the rest dependent on future performance.

We’re just touching on what are in fact major points here – but the main thing to take away is that when deciding to sell, keep in mind it could be a four-year process before completion.

Moving forward: After the offer

After a provisional offer has been made and accepted, there will be a ‘Heads of Agreement’ signed. This will usually allow the purchaser a period of exclusivity.

By this time you will need to have appointed an experienced merger and acquisition lawyer as the outline of the deal structure starts to take shape. You will also need a data room with an exhaustive list of information: Audited accounts, management accounts, contracts with insurers and all major suppliers, contracts of employment with all staff, lease agreements on property and equipment, details of IT software, and any legal claims on the business – past or present.

You will be asked at some stage in the process to verify that all material information has been provided, so the process that you use for data collection needs to be extremely thorough.

With the due diligence process behind you, and assuming it has not proved detrimental nor given the buyer a valid reason to renegotiate the price downwards or walk away completely, your next step will be to move to finalise a sale and purchase agreement (SPA). Once again, your business advisor and lawyer should guide you through what can be quite a stressful set of negotiations.

Preparation, planning, patience

In the end, selling a business that you have worked for years to develop and establish is not something to be rushed. As mentioned, the start-to-finish process could be four years or more when you consider the time needed pre-sale to gather audited accounts, right through to the time that may be built into the contract for you to stay on after the sale. (If you’re serving a three year earn-out, being involved with the wrong organisation can make this relatively short period feel much, much longer.)So the sale price is not the most important aspect of selling a business if you care for the future of your staff and the future of the organisation you have built.

With this in mind, the importance of knowing your buyer and what they intend to do with your business cannot be understated – robust due diligence process, research, credible accounting, knowing the market and surrounding yourself with an experienced team are all necessary components of making sure that you get the best possible deal.

There’s a lot you can do to ensure that what happens in the process of the sale is in your favour. This is your future after all.

Mark Adams, Founder and CEO of Anglo Arabian Healthcare and member of the senior advisory board at Lumina, is an internationally renowned and respected authority in healthcare leadership and management with over 35 years of international experience in the UK, US, and throughout the GCC region. Mark previously led the UK’s leading dental business, Denplan, as well as its parent company AXA PPP Healthcare, and more recently successfully managed the South African owned Netcare UK and advised the Virgin Group on market entry health strategies. 
In 2008, Mark moved to the Middle East to lead a number of private equity backed clinics, hospitals and diagnostic groups before founding Anglo Arabian Healthcare in 2012.