For many healthcare companies, when it is time to sell or refinance their business, finding an investment bank that fits the needs, philosophies and goals of the seller can be an important component for success during the sale/refinance process. Earlier this year, Barclays PLC represented biopharmaceuticals company Ception Therapeutics, Inc. as it closed the $250 million sale of 100% of its capital stock to Cephalon, Inc., arguably helping Ception to achieve optimal pricing. Likewise, in 2006, when hospital system HCA went private via a $33 billion management leveraged buyout, the largest in history at the time, Merrill Lynch Healthcare Investment Banking Group acted as financial advisor to HCA through the process, likely increasing HCA shareholders’ return.
Utilizing an investment bank is not necessary for all companies in all transactions, but an investment bank can help the seller successfully market the business and attract the right potential investors/buyers and ultimately can result in not only a more lucrative deal but a transaction that otherwise meets the seller’s goals. Assessing which investment bank is right for a seller can be a daunting process, but there a few key questions that you as the seller can pose to your leadership when evaluating the various banks in order to find the bank that will ultimately meet your needs. In a recent article authored by Krist Werling, Scott Becker and me, we addressed a number of questions that a seller should consider during the selection process.
One of the first key questions a seller should ask is this: How well versed is the investment banker in your particular industry? Not only are there investment banks that specialize in healthcare (either boutique investment banks that focus on healthcare or healthcare divisions of larger more diverse investment banks) but some investment banks have specialized experience and knowledge about a particular industry within healthcare such as surgery centers, imaging facilities, etc. For example, Bank of America-Merrill Lynch, William Blair, Goldman Sachs, Morgan Stanley, JP Morgan and others have significant health care banking groups within their larger investment banking segments and have made headlines with some of the most substantial healthcare M&A deals in the past calendar year, including Pfizer’s purchase of Wyeth for $66.2 million, Roche Holding’s acquisition of the remaining 44% of Genentech and Merck’s purchase of Schering Plough. Middle market more general investment banks like Dresner Partners also often have healthcare experience. Other banks like Cain Brothers, Leerink Swann and Edgemont Capital Partners have the advantage of focusing nearly exclusively on health care services. Working with an investment bank that understands the complexities of your industry enables the bankers to jump right into a transaction without the need for you to educate them about your industry or to explain basic fundamentals about your business.
The seller should also ask Does the bank understand your individual company as an entity with a unique model, management team and philosophy? Have they taken the time to get to know your corporate culture and special aspects of your product and service delivery and do they appreciate the ways in which your company differs from your industry competitors?
The seller should further consider Is investment banking a main focus of the company? We generally caution people against hiring parties to do investment banking services where this is not a core part of their efforts. For example, one client hired a big four accounting/consulting firm a few years ago to help sell its specialty pharmaceutical business. Investment banking was a newer business line for the big four firm. After months without good results, the client hired William Blair, a company that does focus in investment banking and in part in healthcare and had much better results: i.e. the client ultimately completed a transaction which exceeded essentially all of its targets.
There are a number of additional considerations when selecting the right investment bank discussed in the article. In future posts, we will address these questions.