Why IPO's are not as sexy for medical service providers?
More and more entrepreneurial doctors are considering taking their companies public in Asia, followed by a trend that was seen in USA from mid in late 90's up until mid 2000. The idea of taking your clinics public seems to be a sexy idea as your dream of ringing the bell at the stock exchange and overnight joining an elite group of public companies is appealing. However, there are a few consideration that you must have before you undertake this huge task.
1) Are you willing to be under the microscope?
When you take a company public, your must feel comfortable by being 100% transparent with all of your financial activities. Many family operated businesses where the financial secrecy have been the norm, may not realize how much transparency is required. After all, you are asking strangers to now become partners in your company; Therefore, it is essential that you are completely transparent. If you like to drive a Ferrari and or take an exotic vacation and expense it out to your business account, then all of that will become a source of scrutiny by your future shareholders not to mention your local stock exchange regulators.
2) Can you expand your business fast enough to meet the analyst's expectations?
After the IPO, your company's performance will be constantly evaluated by the analyst and your need to make sure that you are meeting the estimated profits, otherwise your stock price will plummet. This is typically, where many medical providers don't do very well as no matter, how much money they raise at the IPO, it is not possible for them to organically scale their businesses in time to show a profit. Therefore, they typically use the proceeds from the IPO and go on a shopping spree for an existing and a similar type business so they can add revenue to their companies so to just meet the analysts' expectations. Unfortunately, in this process, many of these companies overpay for their acquisitions out of desperation and sometimes go into deep debt to only satisfy the market and their analysts.
3) Do you have a solid plan for integrating newly acquired businesses?
Most publicly listed medical service providers, underestimate the integration of newly acquired clinics. Each new groups of new clinic acquired is based on a business culture unique to it and most of the time is quite different from your company. Unless you have a proper and a solid plan of cultural integration, you will soon find out that many of the employees of the new company that you took over as well as the patients of those clinics will soon leave after the business transition. This will result in loss of revenue and again not being able to meet the analyst's expectations resulting in a decline of the value of your company stock.
These are only a few questions that you must consider before deciding to take your company public. There are many other considerations as well as options available if you are looking for outside investment.
Dr. Allen Nazeri is an expert advisor and a coach, with more than 25 years experience as a serial entrepreneur in the medical field. He now works with both private and publicly listed companies in the areas pre funding valuation, investor preparation as well as negotiation for strategic alliances. He can be reached at Drallenci@gmail.com. or www.Drallennazeri.com