Full Version: Buying a TPA Firm
We're looking to expand our practice through some acquisitions. Does anyone know of a good resource to find TPA firms looking to sell? Or maybe a business brokerage/ M&A advisory firm specializing in our industry?
Dave Baker might suggest advertising on Benefits Link. There is an appropriate classification.
We have been offered the opportunity to purchase a TPA firm. Would someone with experience in such a purchase give us some guidelines? Cash up front, or a percentage of fees generated over the next X years from their clients, or both? Anything to watch out for?
Sharon
Sharon
Don't pay more than "fair market value".
A willing buyer and seller have to negotiate other terms in addition to price:
1) Will the seller remain involved to insure that the transition goes smoothly? If so, at what price?
2) Will there be a non-competition agreement? If so, at what price?
3) What type of plans are they? Some plans have higher billing and profitability rates than others.
4) Are investment commissions involved? If so, who receives them before and after the transaction?
5) Are you purchasing a block of business or an ongoing concern?
6) Are you purchasing potential lawsuits or clean plans?
7) Will the seller indemnify you against any claims relating to services before the sale?
In general, a block of business would be valued somewhere between 60% of annual revenues and 120% of revenues; an ongoing business would be purchased at a multiple of (say 5-15 times) annual profits. However, both of those amounts can go up or down considerably based on the answers to the foregoing questions.
A willing buyer and seller have to negotiate other terms in addition to price:
1) Will the seller remain involved to insure that the transition goes smoothly? If so, at what price?
2) Will there be a non-competition agreement? If so, at what price?
3) What type of plans are they? Some plans have higher billing and profitability rates than others.
4) Are investment commissions involved? If so, who receives them before and after the transaction?
5) Are you purchasing a block of business or an ongoing concern?
6) Are you purchasing potential lawsuits or clean plans?
7) Will the seller indemnify you against any claims relating to services before the sale?
In general, a block of business would be valued somewhere between 60% of annual revenues and 120% of revenues; an ongoing business would be purchased at a multiple of (say 5-15 times) annual profits. However, both of those amounts can go up or down considerably based on the answers to the foregoing questions.
Sharon, you've received a fine gift from vebaguru.
With respect to:
With respect to:
QUOTE (vebaguru @ May 27 2011, 07:20 PM) 
... a multiple of (say 5-15 times) annual profits.
be very careful how "profit" is determined.This is a "lo-fi" version of our main content. To view the full version with more information, formatting and images, please click here.