Valuation:
The information provided in the case as well as historical financial has been used in the excel model to place a value of the business. The excel model provides 3 valuation methods, which are DCF valuation method, market multiple value based on number of physicians and lastly, market multiple value base on revenues. The table below shows the results of the valuation carried out on Akron Family Practice.
Differences in valuation:
Yes, the valuation will depend on who is going to make the acquisition. This is many because different acquirers of the practice may have different intentions. From the preliminary work done by a business broker it is clear that there are different potential buyers, including another for-profit physician group, a wealthy individual investor, and a local not-for-profit hospital. All this buyers have different intentions with the business. The for-profit physician may be interested in integrating the practice in its everyday operations. This means that the for-profit hospital may be interested in the ability of the target acquisition to generate revenue.
Therefore, the for-profit practice may be interested in the market multiple value base on revenues in order to determine whether the acquisition will be profitable in the long run. This is mainly because this valuation method takes into account market factors that determine how profitable the target acquisition is likely to be. The wealthy investor may be interested in buying the practice and selling it for a long-term profit. His key interest may be to sell the hospital’s assets and may be interested in what can be earned from selling the hospital’s assets. Therefore, the wealthy investor’s intention is a short-term profit and may rely on the DCF method of valuation since it takes into account the time value of the assets within the practice.
Best valuation method:
Inconsistent valuation values may be explained by the fact that different factors are used for different valuation techniques. The best valuation technique is a technique that relies on market values. This method will offer an insight into the value of
Share prices:
There is no difference in the per share values of the different levels of ownership. All the practice’s shares are valued at the same value.
Lack of debts and its effect on the acquisition:
Lack of debts within an organization makes it a better candidate for acquisition. Factors like the amount of debt and the type of the debtor are considered. Small debts, in comparison with the ability of the acquiring company to pay, is a factor. If the acquiring company can pay the debt without straining its financial resources, having a debt does not hinder acquisition. In the acquisition process, the main aim is increasing the profits of the acquiring company. Debts and other liabilities are not viewed as a source of income in any circumstance. It also provides an opportunity to direct the financial resources that would have been used to pay off debts to revenue generating activities. Some debts also lead to court cases. Supporting such cases is normally an expensive venture. Due to this reason, companies may shy away from acquiring companies with debts.
However, if the debts of a company are outweighed by the benefits it can offer the acquiring company, it still remains to be a good candidate for acquisition. Some companies are also acquired despite their debts to the complimentary aspects they hold. The value of the way they are able to compliment the operations of the acquiring company outweighs the value of their debt. Other companies may also have financial problems that are less significant compared to the strength of their brand name. Such companies can have the companies that plan to acquire them disregard their debts. The effect of having debts can be neutralized if the company to be acquired has a sizeable number of tangible assets. This provides an opportunity for the acquiring company to spend less on the debts.
Productivity of the physicians:
Productivity for physicians that were previous owners of an acquired company may decrease or increase depending on the situation. Productivity is likely to increase in a number of circumstances. Productivity will increase if the acquisition provides more resources to the acquired company. This includes new procedures and or equipment that will save the time of the physicians while increasing their productivity and efficiency. Productivity is also bound to increase if the physicians did not have the ability to apply proper and updated management skills. The acquiring company can provide proper management therefore increasing productivity.
Acquisitions can decrease the performance of the physicians too. Acquisitions mostly cause employees to be nervous or anxious. This may affect their performance in a company. The main source of anxiety is lack of knowledge pertaining the security of their jobs after the acquisition. It is not uncommon for companies to decrease the workforce of the acquired company to avoid extra expenses. Some of the physicians may also face challenges regarding adoption of the new procedures that may be introduced by the acquiring company. This may affect their performance negatively.
References:
Brown, R., & Westin, R. A. (2007). The concise guide to mergers, acquisitions and divestitures: Business, legal, finance, accounting, tax and process aspects. New York: Palgrave Macmillan.
Gaughan, P. A. (1996). Mergers, acquisitions, and corporate restructurings. New York: John Wiley & Sons.
Marks, M. L., & Mirvis, P. H. (1998). Joining forces: Making one plus one equal three in mergers, acquisitions, and alliances. San Francisco: Jossey-Bass.
Morris, J. M. (2000). Mergers and acquisitions: Business strategies for accountants. New York: John Wiley & Sons.
