Buying a Home Healthcare Business: How I Tried, Failed, and Tried Again.
March 18, 2024
by a searcher from Eastern University in Atlanta, GA, USA
As an independent sponsor, one of the biggest challenges is developing deal flow. The second is access to capital.
Last year, I looked at several businesses including a multisite urgent care operator, a non-emergency medical transportation business, and a portfolio of Church’s Chicken restaurants, that did not include the real estate, among others.
I was fortunate to find a home healthcare and skilled nursing business for sale on BizBuySell.com. The business was started in 1997 and weathered the storms of the dotcom crash, the great recession, and the Covid-19 pandemic. The revenue and cash flow has been consistent for the past several years and it was bankable.
I submitted the Letter of Intent and it was accepted in November###-###-#### I received a loan proposal from a major SBA lender in February 2023 for $2.2 million. My team and I went to work on the financial and legal due diligence.
We were able to get the full application, Quality of Earnings, and other supporting documentation over to the lender in a timely manner. The lender issued a commitment letter for a little over $2.1 million in May###-###-#### We raised the equity injection and were ready to close.
Unfortunately, there was an issue that came up during my background check and the lender withdrew from the deal. I was convicted of a misdemeanor in 1997, when I was in high school, for carrying a pocket knife on school property. I’ve never had a problem with this before but it was my fault for not disclosing it.
I worked tirelessly to find another lender. After shopping the deal to 11 different banks, I found a SBA lender, Lendistry, who was interested in the deal.
They liked healthcare. They liked the Atlanta market. They liked the deal. And they liked me. I was grateful and motivated to see this deal close.
They issued a conditional commitment letter on October 6th, 2023. Again, my team and I worked tirelessly to meet the closing conditions before the lender’s deadline. Here is where we ran into a brick wall.
In Georgia, the change of ownership process is a bit arduous. They require an executed purchase agreement to begin the process. The purchase agreement was a work in progress and we were trying to get the seller and his team comfortable with the change of ownership process.
We went through several revisions to get the final terms nailed down. Unfortunately, the seller’s team started to make unreasonable demands. They expected the lender to fund the deal prior to the change of ownership taking place. This was impossible. There isn’t a lender in existence who would agree to this.
After a lot of back and forth, I brought on an Atlanta based, healthcare M&A attorney to get the seller, and his team, comfortable with the process. My legal team, my new attorney, and the lender all tried to set expectations with the seller’s attorney to drive this deal to the closing table to no avail. The seller backed out.
Whatever the reason is, I don't think that the seller’s team was acting in his best interest. The deal was larger and more complicated than his attorney and broker were used to working on. They tried to play hardball when it wasn’t warranted.
We were willing and able to put $1.8 million dollars in the seller's pocket at closing and another $400,000 note that would’ve been paid out when I refinanced. To say that I was disappointed is an understatement.
An entire year's worth of work went up in smoke. Fortunately, I was introduced to a broker who has a larger home healthcare deal for sale.
I submitted a Letter of Intent a few weeks ago. We are making significant progress on getting this deal financed and closed by the end of the first quarter.
I am grateful for the opportunity to compete on that deal last year, go through the SBA loan application process with multiple lenders, build fantastic relationships with my current and prospective limited partners, work with amazing financial and legal advisors on the deal, and grow into my role as an independent sponsor.
This experience has reshaped my thinking on how I approach and analyze deals, engage sellers and their team, and structure deals in a way that creates a win-win for all parties involved.
I’m looking forward to this new year and the opportunities, to do well by doing good, in the healthcare industry.
from Bangalore University in Camp Hill, PA 17011, USA
^redacted, Thank you for sharing your journey and experiences as an independent sponsor. Your perseverance and dedication throughout the challenges you faced are truly inspiring. It's evident that you've put in a tremendous amount of effort and hard work into navigating the complexities of deal flow and access to capital. Your ability to overcome setbacks and adapt to changing circumstances is commendable. We appreciate your transparency and honesty in sharing the obstacles you encountered along the way. Your story serves as a valuable reminder of the importance of resilience and determination in the world of entrepreneurship. As a fellow advocate for small business growth and entrepreneurship and Business Navigator, we admire your commitment to finding solutions and forging ahead despite the setbacks. We've dealt with similar situations in the past and understand the intricacies involved in securing financing and navigating negotiations. Please know that we're here to support you in any way we can. Whether it's through sharing insights, providing guidance, or exploring potential opportunities together, we're eager to assist you on your journey towards success in the healthcare industry. Wishing you continued perseverance and success. We look forward to seeing your continued growth and accomplishments
from University of Maryland at College Park in Annapolis, MD, USA
Deals can and will blowup for a myriad of reasons, including changes in the macro credit or investment environment, QoE numbers that fall short of expectations, negative due diligence findings, key personnel who attempt to hold buyers hostage, inability to secure financing, seller attorneys who don't want to lose a valuable client, stronger bidders who appear, and sellers who simply change their mind for their own personal reasons or use the buyers emotional investment in the deal as leverage to renegotiate price or terms. Some but not all of these factors are outside the buyer's control, however buyers should consider adding a break-up fee if the seller is not rock-solid committed to the deal. Even that does not prevent a busted deal, it simply eases the pain.