$51M → $97MOffer for a 51% stake
+$30MAdded after one assumptions walkthrough
16 monthsNever traded down
~$9MEBITDA in the quality of earnings
The situation
A three-year-old virtual behavioral health company had real momentum. Its clinicians worked inside six community health center (FQHC) partners, and in its second year revenue grew from about $1.8M to $6.6M while gross margin rose from 27% to 47%.
What it didn’t have was books a buyer could trust. Three years of history had been recorded incorrectly, monthly statements were only partly complete, and the same year’s profit changed depending on which report you opened. A buyer’s quality of earnings (QoE) team finds problems like these, and when it does the price drops or the deal dies. Our job was to find and fix them first.
What we did
- Rebuilt three years of books. We restructured all three prior years and normalized where we had to. At the largest partner, invoice-level revenue had been off from the accounting system by as much as $100K in a month. After the rebuild it matched to the dollar.
- Went to the raw data. Every encounter, invoice and payroll record across all six partners, more than 9,000 invoice lines at one partner alone, cleaned into a single source of truth.
- Built five purpose-built models. One for each job, so every number had one home.
KPI data modelOrganized raw encounter and invoice data and produced monthly KPI reporting for each partner: penetration, utilization, productivity and charges by visit.
Operating cost modelRebuilt the selling company’s operating costs so margins could be validated line by line.
Employee cost modelTracked every employee’s cost over time to validate historical payroll and staffing.
Advanced pro formaA 10-year forecast built from the latest year of raw transactions, on validated assumptions specific to healthcare and telehealth.
Diligence request trackerTracked every due diligence request from the buyer’s third-party QoE firm, so nothing was missed and every answer traced back to the data.
- Proved the assumptions. The model assumed 1.08 medication visits per patient per month, and the actual was 1.16. Therapy: 2.14 assumed, 2.01 actual.
- Proved the unit economics. One health center that switched from a national vendor earned more than twice the vendor’s three-year profit in under a year.
- Led the QoE. The buyer hired a national healthcare valuation and transaction advisory firm. We worked directly with its teams and reported back to both the owner and the buyer. The buyer accepted the rebuilt numbers.
How the offer moved
Initial offer$51MFirst look at the business
Numbers verified~$67MRebuilt books held up in diligence
Assumptions walked through$97MOne session matching each pro forma assumption to actual results added $30M
“The valuation is in the numbers and in the leader. They go hand in hand. When you can validate every one of them, trust with the buyer about your forecast starts building instantly.”Patrick Quigley
Lessons for owners
- Have an experienced third party in your corner. The owner or CEO is usually the visionary, not the finance person. You need someone who has represented sellers and speaks the same language as the buyer’s deal team.
- Your books are the product. Unreliable financials are the biggest risk you can hand a buyer.
- Start from transactions, not summaries. Numbers rebuilt from raw data are the ones that survive a QoE.
- Walk the buyer through your assumptions yourself. A forecast backed by actuals is a negotiating asset. Ours added $30M.
Details are generalized to protect the confidentiality of the company, its partners and the buyer. Figures are rounded.
