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Capital deployment: changing radiology landscape provides opportunity for investors

November 27, 2016
From the November 2016 issue of HealthCare Business News magazine

In scenarios two, three and four, choosing the right partner is crucial. Promising partnerships should promote business growth by allowing greater flexibility in changing environments and assist in faster growth, while at the same time presenting opportunities to bolster the management team and increase investment in technology and infrastructure to drive efficiency. The ideal partner will increase the company’s financial stability by creating a stronger mix of growth capital and liquidity, generating opportunities for upside potential and increasing adaptability of the business model. While price is an important factor, equally important should be considerations such as the partner’s experience growing similar businesses, relationships with hospitals and other industry players, commitment to service quality and patient care, preservation of physician culture and long-term employment and the ability to minimize competitive issues and disruptions to ongoing business.

Practice vs. platform
Physician groups need to appreciate that there are a number of key factors that differentiate practices from platforms. To command a premium valuation, physician groups must distinguish themselves as a true platform, built for scale and commanding strong growth potential that investors find desirable. Investors and buyers looking for attractive radiology sector “platforms” determine valuation based on the following key attributes:

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Market dynamics: Attractiveness of the market and growth opportunities for the company, as well as where the company is positioned in the competitive landscape.
“Best of breed” perception: “Stickiness” and quality of hospital and client relationships, clinical capabilities and quality measurements, technology investments in data analytics and workflow and the ability to navigate the transition to value-based reimbursement. Is the company perceived as a leader in the market?
Company financials: A company with proven financials, including historical and projected revenue growth and a strong revenue mix/ diversification, will command a significantly higher valuation.
Management team: A strong management team with depth of experience and promising administrative staff and mid-levels will positively influence the valuation a company receives and its attractiveness to investors. Is the management team backable by outside investors?
Preparation: On average, about 20 percent of a company’s value is driven by the organization’s ability to clearly and concisely tell its story to investors. This includes effectively positioning the company in the market, sharing the company’s growth story and creating a bulletproof accrual basis financial model. This is where the importance of choosing an investment banker with a proven track record of advising radiology groups is critical to success.

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