August 30, 2010

MTSOs, Mergers, and Matchmaking
By Annie Macios
For The Record
Vol. 22 No. 16 P. 6

Creating the perfect match isn’t always as easy as pairing peanut butter and jelly or wine and cheese. Nevertheless, that’s what brokers in the healthcare industry strive for as they try to create ideal pairings between medical transcription service organizations (MTSOs) and potential buyers.

A View From the Middleman
Jason Robinett, vice president of Corporate Finance Advisors in Cleveland, says using the term “matchmaker” for brokers and intermediaries is fair enough; however, the relationship goes much deeper than that. “We must also become a confidant and get to know the clients involved to learn what makes sense for the buyer and the seller. Ultimately, the right match gains the best results for both parties,” he says, adding that it isn’t his job to tell an MTSO whether it should sell, but it is his responsibility to place the company in the best possible position that will afford it opportunities.

 “Looking at it as finding a good match is accurate because every owner has different goals and direction. Some want to sell and cash out, and some want to be part of a bigger chain or company. We can make that match,” says Brian Toelle, vice president of Kruse Acquisitions in Madison, Wis.

Toelle notes that he spends a good deal of time listening and finds deals don’t always take a straightforward route. “We are always looking to help owners that want to sell, but we don’t take a ‘Let’s Make a Deal’ approach. Rather we approach it with more of an interview to find out where they would be a good fit,” he says. “Our job is to help owners of MTSOs understand all of the options they have, to keep the buyer and seller very happy even looking three years down the road. That is why it is very important to match the buyers and sellers properly.” He says he tries to avoid injecting personal opinion into the process and aims to deliver the facts to both sides in an emotionless manner.

Toelle explains mergers are the rage right now because many MTSOs fear the unknown as HIT evolves, and hooking up with a buyer provides them an opportunity to find a “happy home” rather than experience a hostile corporate takeover. “We keep the process friendly,” he says. “It’s about matching the goals of everyone. More than half of my clients want to stay on with a new company rather than simply cash out, and we can make that happen. For those looking to get out, at this time those who are selling are getting a very good price.”

What makes a seller attractive? Robinett says it depends on what the buyer is looking for, which can be different for each transaction. He notes potential buyers are attracted to several qualities, including top-line revenue; large, positive cash flow; stable management; industry experience; a strong software platform; large hospital accounts; smaller ambulatory accounts; and strategic geographic locations.
As for buyers, Robinett points out four main types, all with different motivations: other MTSOs that want to grow their business; financial buyers, including private equity and venture capital groups; businesses in related industries such as medical billing or EMRs who want to cross-pollinate their business; and individuals.

“Our biggest value to a seller is in our ongoing contact and relationship with more than 100 known and proven buyers who know what they are looking for,” says Robinett, adding that despite years of experience, he never stops being surprised at the deals that emerge, including situations in which a seller ultimately turns out to be a buyer and vice versa.

“Confidentiality is the most important thing in our business. Being discreet but getting exposure is challenging,” he notes. For that reason, Corporate Finance Advisors does next to no marketing at conferences. “All the people there generally know each other. If others find out a business is considering selling, it can affect employees, the bank, and its competitiveness in the marketplace,” Robinett says.

MTSO Viewpoint
New England Medical Transcription President Linda M. Sullivan says there are inherent qualities about the medical transcription industry that have made MTSOs attractive targets. “Those who do it well have a recurring revenue cycle, historically most have a high ebitda [earnings before interest, taxes, depreciation, and amortization], and are in a sector of healthcare that currently is seen as something to invest in,” she says.

The federal plan to spark EMR adoption through the American Recovery and Reinvestment Act is affecting how the transcription industry is viewed. “Frankly, a lot of people are concerned about that. With the EMR, transcription wasn’t part of the thinking when the technology was developed, so to some that is a scary prospect,” says Sullivan. However, she believes transcription will still have an important role in the future. “From my perspective, I believe it’s a great time for transcription to evolve and that it must morph into something much more high tech,” she adds.

Sullivan has found that brokers and investors actively seek out companies for acquisition. “I believe that companies with a certain level of revenue—greater than $5 million—are of particular interest to private equity groups,” she says. New England Medical Transcription happens to be one of the few MTSOs to generate that type of revenue, and it’s kept Sullivan on her toes. “I had a day last week when six [prospectors] contacted me, and I have a folder filled with letters and e-mail correspondence. I’m not interested in selling, but it is always good to talk with these folks because it gives me a good perspective on what others view as a good business model,” she says.

So do MTSOs hide when brokerage firms approach? While human nature can often dictate a certain anathema to salesmen, Sullivan views encounters with brokerage firms or intermediaries as an opportunity to learn about current industry thinking.

While each MTSO is different, the common denominator is there are many ways to run a transcription organization, and most are successful. “There are many variations in the business model, but as long as you have a competitive price, quick turnaround time, and 98% or higher quality, you will be successful,” says Sullivan. As a result, she doesn’t see the pace of the buying and selling slowing down in the near future.

Robinett agrees: “We’ve got a whole portfolio of buyers looking for various things. The real value intermediaries have is when you can bring a lot of interested parties to the table and find the perfect match.”

— Annie Macios is a freelance writer based in Doylestown, Pa.