How to Perform a Disciplined Sell-Side M&A Process to Maximize Results

How to Perform a Disciplined Sell-Side M&A Process to Maximize Results

A Step-by-Step Guide to the Sell-Side M&A Process

The sell-side M&A process is long and complex. Bringing a company to market does not guarantee the company will achieve its M&A goals. The M&A process is challenging for three reasons:

  1. It is difficult to build consensus among a large number of stakeholders
  2. Gathering relevant, transparent, and adequate data is complicated, particularly in private markets
  3. The M&A process contains many steps, and within each step there are many opportunities for things to go wrong

This report contains the step-by-step guide Jahani and Associates (J&A)—an NYC-based global independent investment bank—uses to maximize results for its clients. Each step in the sell-side M&A process is driven by activities, deliverables, and solutions.

STEP 1: Preparation to Solicitation

Preparation to solicitation requires the company and their investment banker to generate the artifacts buyers need to make an offer for the company. This information includes but is not limited to financial information, the growth history of the company, intangible asset information (e.g., customer relationships and proprietary technology), and the reasons the owners are selling the business.1 This information must be woven together and organized correctly so buyers can efficiently formulate their offers.

Industry-standard deliverables, such as a confidential information memorandum (CIM) and audited financial statements, are used in this phase to market the business to potential buyers.

STEP 2: Solicitation to Indication of Interest (IOI)

This is arguably the most important part of the sell-side M&A process. Reaching the sufficient number of solicitations to ultimately find an interested buyer is difficult and incredibly important, particularly in the lower-middle and middle markets. The volume of solicitations necessary is higher than most professionals expect. The methods to generate qualified buyer leads also vary based on the industry, region, and type of investment bank (e.g., healthcare investment bank, agritech investment bank, etc.). Solicitation is initiated with a blind teaser, using a code name in lieu of the company’s name. Buyers may request more information after the teaser—at which point a nondisclosure agreement (NDA) is required. J&A recommends only sending detailed material during the preparation phase to potential buyers after they have signed the NDA. For sellers to create a succinct and consistent story for all potential buyers at this stage, it is very important not to provide too much information.

Common sources of buyer solicitations include direct connections from an investment banker’s warm network, introductions and referrals from partners in the investment banker’s network, direct solicitations of qualified buyers determined from research (e.g., PitchBook), and target emails to qualified lists of buyers. Coordinating all four types of outreach is a complicated task. Figure 2 demonstrates common reasons for failure and how J&A recommends sellers and their advisors avoid them.

IOIs contain valuation ranges and general expectations of earnout. These should be negotiated as necessary to have a smooth transition from an IOI to an executable letter of intent (LOI). IOIs are nonbinding.


A site visit usually occurs while transitioning an IOI to an LOI. The visit is an opportunity for the buyer and seller to meet and conduct a deep dive into any outstanding items that need to be settled before executing an LOI. Since LOIs are legally binding, many buyers will require exclusivity after an executed LOI, which is also referred to as a “no-shop clause.” This means the seller will not be able to conduct sale-related conversations during the no-shop period and must ensure the upcoming due diligence will be satisfactory in order to close the deal.

STEP 4: LOI to Purchase Agreement, Including Due Diligence

Due diligence is often the longest part of the sell-side M&A process. Depending on the size and complexity of the deal, it may take up to 120 days.2 Due diligence is the process of affirming the information the buyer has used to make its offer and determining whether or not the company is in good standing with the relevant administrative, legal, financial, technological, security, operational, and other information in its possession.

Once due diligence is complete, executing the purchase agreement is the final step in the sell-side M&A process. These agreements can either be asset purchases or stock purchases. The purchase agreement is the binding contract where ownership officially changes hands. If due diligence went as expected, this step should be relatively simple. The changes that may affect purchase agreement negotiations are material discoveries in due diligence, economic forces, material alterations in the business’ operations, and management changes. It is very important for business activities to go according to plan during due diligence.

Problems and Solutions: Quickly Resolving Challenges Requires Deep Thinking and Preparation

Jahani and Associates collected common challenges that exist in each step of the sell-side M&A process and the best way to resolve them. It is important for M&A stakeholders to plan ahead and know where expected weaknesses may lead to exacerbated challenges.

It is imperative the investment banking team has a plan to resolve these challenges before they even arise in order to avoid disruptions or delays in the M&A process.

Preparation to Solicitation

Companies most often do not go from preparation to solicitation when seller management teams are not aligned or properly prepped for the sell-side M&A process. This can occur when multiple stakeholders are involved, particularly in companies boasting a significant capital raise. A seller may also not move to the solicitation phase due to major market forces negatively affecting business performance. If a business undergoes a change that materially reduces the company’s desired valuation, management often decides to postpone the process.

Solicitation to IOI

Fundamentally, solicitation to IOI is a sales process. Therefore, sellers and their teams are most prepared when they view this as a sales exercise. This is often the most difficult step in the process for unprofitable companies in the lower-middle market.


Moving from an IOI to LOI is a matter of negotiation and mutual understanding between the buyer and seller. A site visit is often used in between the IOI and LOI to develop a relationship between the buyers and sellers.

LOI to Purchase Agreement, Including Due Diligence

Due diligence is the process of confirming the buyer’s understanding of the business at the time they made their offer. Due diligence is time-consuming. Material information that changes the valuation and earnout identified in the LOI may be discovered during due diligence. This will be negotiated as part of the purchase agreement. Purchase agreements may be made for either cash or stock, each of which has its own tax, legal, and strategic considerations.

The Sell-Side M&A Process Is Challenging, but the Seller’s Success Will Be Maximized When a Disciplined Process Is Followed

The challenges, solutions, and KPIs in this paper are not exhaustive, but they provide an overview of the way to maximize success in sell-side M&As. It is important that all stakeholders understand the challenges they will face and how to alleviate them as quickly as possible. Establishing a consensus among stakeholders from the outset will also help mitigate any issues that may unfold. Focusing on a problem-solution-KPI framework gives transparency to the client and allows the investment banker to increase the size of their team while preserving client service and information sharing. Experience in dealing with these issues is paramount to successfully delivering M&A results, and that experience must be coupled with actionable outcomes.

Any business owner seeking to sell their business must carefully consider all these factors. Being aware of expected obstacles and how to overcome them early will significantly increase the likelihood that a company successfully completes a sell-side M&A transaction. The analysis contained herein is based on decades of experience and is included to support business owners across the world as they achieve a maximally successful exit.


In 2019, Jahani and Associates surveyed hundreds of business owners about successful and failed M&A deals, why they failed, and how those failures could have been avoided. J&A then compared these stories with its own processes and tools to determine the best way to anticipate and avoid these failures in any M&A scenario. The resulting analysis is this document that outlines common reasons for failure and how to avoid them. This document is meant to serve as a resource to business owners and other service providers to give the best strategic advice and service for their businesses or clients.


Jahani and Associates (J&A) is an independent investment bank located in New York, New York. The firm specializes in healthcare and technology and provides specialized M&A and capital markets advisory services. The combination of J&A’s unmatched skills in technology, engineering, and business operations allows the firm to create sustainable value for its clients. J&A works at the intersection of cutting-edge financial theory and business practicality. Creativity is highly valued within the firm, which allows J&A to continually improve the way businesses thrive.


1. Baird, Les, David Harding, Peter Horsley, and Shikha Dhar. “Using M&A to Ride the Tide of Disruption.” Bain & Company, January 23, 2019.

2. Buesser, Gary. “For the Investor: Internally Generated Intangible Assets.” Accessed November 22, 2019.

3. Corporate Finance Institute. “What is the No Shop Provision?” No Shop Provision. Accessed November 22, 2019.

4. Deloitte. “Cultural issues in mergers and acquisitions.” Leading through transition: Perspectives on the people side of M&A. Last modified 2009.

If Biden Wants to Improve Relations With China, He Should Look to the Middle East

If Biden Wants to Improve Relations With China, He Should Look to the Middle East

President Biden’s first moves in the Middle East—bombing Iran-backed militias in Syria, for instance, while deprioritizing much of the rest of the region—neglect the bigger picture of a region that is leading the world out of the pandemic. And with the first US-China meeting under the Biden administration getting off to a tough start this week, that’s more important than you might think.

The Gulf states and Israel provide an opportunity for the US to participate in a global economy that will be more centered on the Middle East than it was before the virus. This future must be a cornerstone of US policy, as well as the legacy issues around security.

The COVID-19 pandemic has threatened the mature economies of the US and Europe, accelerated China’s inevitable rise, and given opportunities to the region’s often more agile and adaptable countries.

There are few countries in the world that have (almost) put the pandemic behind them and are on good terms with both the US and China. Those are the countries that are set to lead the world in the 21st century. They are almost exclusively in the Middle East.

The rise of the Middle East as a gateway between the US and China presents an opportunity for Biden to re-engage with Beijing through the neutral soil of Israel and the Gulf states. Biden should not be afraid of celebrating and building on the diplomatic progress achieved under the Trump administration through the end of the GCC rift and the Abraham Accords.

Being the “new Europe” is something that Middle Eastern leaders are understandably motivated by, particularly in light of their relations with both DC and Beijing. Europe was the middle ground for the Soviet-US Cold War, and the Middle East is the same for the China-US relationship—geographically, politically, and economically.

Rather than continue to fight yesterday’s conflicts and ignore today’s achievements (perhaps focused on distancing himself from Trump’s policies), Biden should craft policy based on the reality that the Middle East is transitioning from a 20th century defined by conflict and insecurity to a 21st century where the Silk Road is once again the social, economic, cultural, and political center of the world.

This is a future into which the Middle East is rapidly progressing. Three of the top five countries with the most COVID-19 vaccinations (excluding the Seychelles and the Maldives) are in the Middle East—namely the UAE, Israel, and Bahrain. In addition to a successful vaccination campaign, total death rates in these countries and others in the region have remained low. All this while key industries, including tourism, have often remained open.

Saudi Arabia has been working to almost triple its non-oil revenues, and is investing billions into futuristic cities like NEOM and “The Line.” The UAE successfully completed a mission to Mars during the pandemic and recently announced plans to double Dubai’s population, all while commentators in London and New York discuss the “death of cities.”

Gulf economies also benefit from a low debt-to-GDP ratio, which will allow them to maintain growth while more developed and leveraged economies struggle in the wake of the pandemic. The US currently has a debt-to-GDP ratio of over 100%; in Saudi Arabia and the UAE, the debt-to-GDP ratio is only 20%, meaning those governments will have spending power well into the future for public and private projects.

China is busy building deeper links in the region, where doing business is more important than talking politics. It is important to Biden’s legacy that US policymakers and investors do the same, and foster both cultural and economic connections to the new Middle East rather than allowing themselves to be crowded out.

To this day, too many American political and business leaders are driven by the impulses that impacted actions between them and the Middle East at the start of the millennium. Twenty years on, the White House should look to the future. It must adapt to the rise of China by utilizing the Middle East’s neutral ground to increase cooperation with Beijing.

It’s high time an American president looked to the Middle East for its entrepreneurship, adaptability, and its e-governance, rather than simply for its oil.

Joshua Jahani is a Cornell alum, public speaker, and an investment banker with a focus on the Middle East and Africa.

MENA Investment Series: Strategies for Bringing Innovation to MENA (3 of 3)

MENA Investment Series: Strategies for Bringing Innovation to MENA

Part 3 of 3

In the last installment of the Middle East Investment Series, we detailed the recent venture funding in the region by industry and country. Now that the landscape has been outlined, we will walk through how to use a joint venture (JV) strategy for bringing innovation to the MENA region.

We hope this series has been valuable to you. Our next series will be a deep dive into technology and venture investing in the MENA region. We will focus on dynamics between all MENA countries, including major investment firms, portfolio companies, amount invested, and how it relates to each country’s global strategy for maintaining a competitive advantage.

MENA Investment Series: VC Funding by Industry and Vertical (2 of 3)

MENA Investment Series: VC Funding by Industry and Vertical

Part 2 of 3

Last month we highlighted the growth in the Middle East and North Africa (MENA) investment space. In this newsletter, we will dive into funding by industry and region.

In next month’s newsletter, we will walk through the steps to create a successfully closed deal in the region based on success stories and lessons learned. This information will be a guide to expansion in the region supported by capital placement.

MENA Investment Series: Breadth and Depth (1 of 3)

MENA Investment Series: Breadth and Depth

Part 1 of 3

Middle East and North Africa (MENA) private equity and venture capital investments are on the rise.

Over the coming months, the J&A Insights Newsletter will detail the MENA investment landscape and key takeaways to highlight opportunities in the arena, as understanding the landscape can support a successful raise.

Private Equity Buyers Use Intangible Assets to Maximize M&A Value

Jahani and Associates’ Strategy to Maximize M&A Value Using Intangible Assets

Private equity (PE) mergers and acquisitions (M&A) activity has been steadily increasing since 2008.1

Jahani and Associates (J&A)—a top New York investment bank led by Managing Director Joshua Jahani—has found that these private company buyers create returns for their investors and management through two ways:

  1. They increase the free cash flow of purchased companies to more than the investment made to buy the company.
  2. They improve the company’s operations and finances, then sell it for a premium to another buyer several years later.

This strategy has proven to be very effective. Since 2010, private equity returns have outperformed standard market returns.2 However, PE buyers are faced with two problems when it comes to generating returns for their management and investors. These problems are grounded in the fact that intangible assets matter most when it comes to generating returns and make up over 80% of M&A value. The problems are:

  1. It is difficult to determine the fair value of purchased intangibles accurately, and thus, it is challenging to optimize financial reporting.
  2. When selling a company several years after investment, it is difficult for PE buyers to prove to strategic acquirers, public investors, and other PE buyers that they own intangibles that matter to them.

The following research, evidence, and strategies provide a solution for both these problems. The solution to problem one is to perform a more insightful purchase price allocation (PPA) than is typically done in the market. The solution to problem two is to execute a better sell-side process driven by acknowledging that intangible assets matter most.

Using Purchase Price Allocation to Optimize Financial Reporting for PE Portfolios

Purchase price allocation is done near or after the closing of an M&A transaction. The goal of PPA is to relate the total money paid for a target company to the assets of that target. PPA work is based on five asset categories: cash, tangible assets, intangible assets, goodwill, and liabilities.

What are Intangible Assets?

Intangible assets lack physical properties. They have the potential to either generate income or save costs for the owner. Most of the time, intangibles are not contained in a firm’s balance sheet. These may include customer contracts for health insurance companies and in-house developed technology for consumer product companies. Intangibles are usually amortized between three to 15 years based on their characteristics and useful life. The useful life of intangibles is subject to legal, regulatory, or contractual provisions that are considered during valuation.3

Intangible assets are typically valued by one of three methodologies:

  • Income
  • Market
  • Cost Valuation

Income valuation considers the incremental value an intangible brings to a firm’s cash flow. Market valuation involves identifying the price an asset trades at in an efficient market, then applying that value to an identified intangible asset. Cost valuation requires estimating the amount of money that would be spent to replace the intangible asset. In general, income and market valuation methods value assets at their highest, whereas cost valuation creates a lower asset value.

Landing on a unified valuation method between buyers and sellers can be challenging. Determining a fair value for both buyers and sellers requires a deep level of expertise in operational, financial, and regulatory due diligence. At Jahani and Associates (J&A), our experienced team of tech investors and wellness investors led by Managing Director Joshua Jahani have designed a valuation solution based on the analysis of thousands of purchase price allocations and our collective industry experience for startups and Fortune 500 companies.

M&A studies have shown that intangible assets and goodwill make up most of M&A deal value.4,5 Intangible assets and goodwill are amortized differently. Amortization is the process of writing off the cost of an intangible asset, just as depreciation is the process of writing off the cost of a tangible one. High amortization or depreciation lowers net income in a company’s financial statements. Private companies amortize goodwill over 15 years as an asset, and public companies do not amortize goodwill. Instead, public companies must undergo costly impairment tests for goodwill each year. Goodwill impairment tests include studying intangible assets to determine if their fair market value and useful life has significantly changed since the asset was acquired.6

Intangible assets, apart from goodwill, can be amortized between three to 15 years. Therefore, when a buyer allocates more of its purchase price to intangible assets than to goodwill, it can increase the company’s amortization expense, lower its net income, and optimize its financial reporting.

However, this does not change the overall purchase price; it only changes the amounts allocated to goodwill and intangible assets. Figure 1 is an illustrative example of how allocating more purchase price to intangibles can optimize a buyer’s financial reporting.

The Financial Accounting Standards Board (FASB) and the Accounting Standards Codification (ASC) 805 outline the rules for acquisition accounting that can be used to determine which assets and what asset amounts can be placed into the intangible asset category, separate from goodwill. The key to performing an intelligent PPA is rooted in understanding FASB ASC 805.

Jahani and Associates have analyzed over 6,000 PPAs from publicly traded companies to determine the intangible assets that matter most. The intangibles that matter most are determined by industry verticals. For example, customer contracts are overwhelmingly valued in health insurance companies, but technology developed for in-house use makes up most of the M&A value for consumer product companies.

Steps Buyers Can Take to Optimize Financial Reporting Through Purchase Price Allocation

There is good news for private equity buyers: the performance of a better purchase price allocation process can optimize financial reporting.

Jahani and Associates’ experienced team of tech investors and wellness investors led by Managing Director Joshua Jahani have created this process based on our experience and through researching thousands of purchase price allocations. We offer a step-by-step guide that identifies the intangibles that matter, values them, and subsequently optimizes financial reporting. Each step of the traditional process is disrupted by Jahani and Associates’ methodology.

At its core, the process uses publicly available data and best practices valuation methods to create a strong case for the value of each identifiable intangible asset. The prevalence of intangible assets differs by industry. Therefore, industry dynamics are carefully analyzed during purchase price allocation work to identify the assets that matter most today and will likely matter most in the future. Figure 3 shows this disruption along each step of the process.

Step 1: Understand the Intangible Assets that Matter in the Respective Industries

Jahani and Associates have reviewed thousands of purchase price allocations to determine the most common intangible assets by industry. Before starting a purchase price allocation project, this analysis is required to make sure industry standards are followed, and identified intangibles align with reality.

Step 2: Allocate the Purchase Price Based on FASB ASC 805 Criteria

Based on FASB’s rules, buyers and their advisors must understand what constitutes an intangible asset. The criteria are separability, measurability, and predictability. An asset must meet all three of these criteria to be considered an intangible asset. Income, cost, or market valuation methods can be used to determine the fair value of an intangible asset.

Step 3: Calculate Goodwill and Execute the Chosen Strategy

After calculating each assets’ fair value, goodwill can be determined and minimized for the buyer. Increasing the allocation of intangibles with less than 15 years of useful life will always increase the amortization of the new entity and, therefore, optimize financial reporting. In some cases, amortization may need to be minimized. This may be the case if buyers want to maximize net income for reporting or competitive purposes.

Using Intangibles to Perform a Better Sell-Side M&A Process

Beyond purchase price allocation, understanding how intangible assets perform creates powerful insights for the M&A sell-side process. Sell-side M&A is Jahani and Associates’ most active service offering and has gained popularity because of the focus on intangibles. Intangible assets allow sellers to naturally create the buyer’s business case when running a process. Figure 4 shows the steps that can be used to accomplish this.

Step 1: Identify What Makes Your Company Valuable

This M&A strategy is based on increasing a firm’s valuation according to FASB rules. The valuation process draws from asset and market valuation methodologies with a focus on intangible assets. Because intangible assets are often more elusive and difficult to quantify, the first step is to identify precisely what will be valued, why it will be valued, and how it will be valued. The quantitative drivers for this are often key performance indicators (KPIs) specific to the business. For example, ad-tech KPIs may include daily active users, time spent inside an application, or the number of interfaces integrated into the technology. KPIs must be very specific and consistently measurable. If they are not, then the valuation will be indefensible.

The process to identify a company’s valuation requires a deep understanding of the firm’s industry, potential buyers, M&A activity, and internal strengths. Business owners should conduct an internal assessment of their perceived strengths and then compare those strengths to measurable intangibles identified through market analysis as shown in this paper. The owners must determine how to value these intangibles and collect relevant information as required through income, market, or asset valuation methodologies.

Step 2: Develop, Prove, and Maximize the Identified Value Over Time

The process of developing an intangible asset becomes the process of doing business. In fact, business as usual and intangible asset development are often two ways to describe the same thing. The only difference between business as usual and developing intangible assets is the data collected along the way.

The relevant data collected during market analysis, the process of identifying what makes a company valuable, is also the data that should be used to develop intangible assets carefully. For example, suppose time spent on the application is identified as an intangible asset in the market. In that case, a company should record both the costs and effort to develop those assets through user experience design, added functionality, better graphics, and any other relevant business processes.

Step 3: Monetize Your Assets by Communicating Your Value Better Than Your Competition

For the business owner, monetization happens once the transaction is consummate and the investment banking process is complete. M&A provides an excellent way to measure the impact of intangible assets on a company’s valuation and confirm their role in the purchase price. As of December 2018, all public and private companies are required to allocate M&A purchase prices according to FASB ASC 805.3

Ignoring Intangible Assets Can Cost Buyers Millions of Dollars.

Intangibles make up over 90% of M&A value, according to Jahani and Associates’ research. The best time to maximize identifiable intangibles is during purchase price allocation. This effort creates significant ROI when the business is later sold. Private equity buyers can then reap the benefits of their careful thinking by having proof of the intangibles that exist in their businesses several years later. Without performing more informed purchase price allocations, this case is very difficult to make. Innovating purchase price allocation, which Jahani and Associates does, creates significant financial benefits when private equity firms look to exit. Intangible assets make up most of the value in both private and public capital markets today. Because these assets are not subject to the same standardized reporting as tangible assets, buyers are disadvantaged when it comes to understanding and investing in them.

The principles laid out in this whitepaper give buyers actionable tools to optimize their financial reporting and boost their balance sheet value for future sell-side performance. There is a plethora of evidence that intangible assets make up most of the financial value in both private and public equity markets.

Ignoring intangible assets during purchase price allocation or sell-side M&A is a mistake that can cost private equity firms millions or tens of millions of dollars. The buyers must make purposeful investments to understand, identify, develop, and monetize intangible assets to maintain a competitive edge in increasingly competitive industries.


In 2019, Jahani and Associates reviewed M&A activity among the largest companies in the financial services, healthcare, energy, IT services, and branded consumer products industries to determine the intangible assets that matter most in each industry. Intangible-asset pro formas were taken from the Securities and Exchange Commission (SEC) reports only. J&A also surveyed over 15 private equity business leaders in the United States to understand how executives used intangible-asset reporting to make business decisions.


Jahani and Associates (J&A) is an independent investment bank located in New York, New York. The firm specializes in healthcare and technology and provides specialized M&A and capital markets advisory services. The combination of J&A’s unmatched skills in technology, engineering, and business operations allows the firm to create sustainable value for its clients. J&A works at the intersection of cutting-edge financial theory and business practicality. Creativity is highly valued within the firm, which allows J&A to continually improve the way businesses thrive.


J&A Subsidiary Firm BBMA is Featured by Cornell Tech Product Studio

J&A Subsidiary Firm BBMA is Featured by Cornell Tech Product Studio

Jahani and Associates subsidiary firm BBMA was selected to work with Cornell Tech’s product studio among other companies like Amazon, Apple, Alphabet, and Bloomberg.

A video of the final presentation can be seen here

The work was also featured as a top performer in subsequent Cornell news. This can be found here.

Health Insurance: Using Intangibles to Make Better Buy-Side M&A Decisions

Jahani and Associates’ Strategy for Health Insurance Buy-Side M&A

After most M&A deals close, the new business does not create the value that executives predicted.1 Jahani and Associates (J&A)—a top New York investment bank led by Managing Director Joshua Jahani—has determined this is because of two reasons:

  1. Overstated and overambitious goals made by executives during the M&A process
  2. Intangible asset reporting that is below acceptable standards for both the buyer and seller

Jahani and Associates solves the problem created by inadequate intangible asset reporting through a unique strategy based on empirical evidence. J&A’s experienced team of tech investors and wellness investors suggests that solving this problem also reduces the ability of eager executives to overstate benefits, synergies, and business combinations during the buy-side M&A process. Passionate executives are good for international capital markets, but passion should be moderated with measurable value.

The following describes J&A’s strategy along with supporting empirical research for health insurance M&A buy-side decisions. This evidence is based on the M&A activity completed by the United States’ largest health insurance companies between 2010 and 2017: Aetna, Anthem, Centene, Cigna, Humana, Magellan, Molina, UnitedHealthcare, and Wellcare. This analysis is specific to health insurance M&A; similar analysis can be done for any industry.

J&A’s research has proved that intangible assets make up over 90% of M&A value. Within this 90%, customer-related intangible assets are most prominent for health insurance companies. Customer-related intangibles account for approximately 65% of the M&A deal value.

This research also relates specific intangible assets to financial performance. Medicaid buyers such as Molina and Centene achieved the greatest revenue growth between 2010 and 2017. J&A believes Medicaid acquisitions caused revenue growth for these companies based on regulatory dynamics. The final part of this paper delivers the strategy J&A uses for its health insurance and healthcare clients to help them make better buy-side M&A decisions.

Identifying the Intangible Assets That Matter in Health Insurance M&A

The international health insurance M&A market is very large, representing between $70 and $120 billion per year between 2010 and 2017. Figure 1 shows the international health insurance M&A deal size from 2010 to 2017. This data does not include initial public offerings. The majority of deals were completed by corporate M&A buyers. These buyers comprised over 80% of the money spent and over 70% of the transactions completed.

The most common way to describe M&A value is through financial statement metrics such as earnings before interest, tax, depreciation, and amortization (EBITDA) or revenue. But financial statements have become decreasingly relevant since the dot-com boom in 1995 because they do not contain information about intangible assets. This is a challenge for buy-side M&A decision-making. Without standard reporting, it is very difficult to collect data on members related to Medicare, Medicaid, duals, commercial, and other populations. These challenges are especially prevalent in the private markets. Private company reporting is ad hoc, disorganized, and unstandardized.

Because of this information gap, health insurance companies must have a better strategy to acquire the right intangibles and integrate those intangibles into the buyer’s existing business during buy-side M&A. They need to collect information about intangibles throughout scouting, solicitation, diligence, closing, and integration. Collecting and analyzing this information must be part of the buy-side M&A process, which is usually led by an investment banker.

Health Insurance Companies Spend 14 Times More Money on Intangible Assets Than Tangible Ones

To define the intangibles that create the most M&A value for the buyer, J&A collected the purchase price allocations for all acquisitions completed by Aetna, Anthem, Centene, Cigna, Humana, Magellan, Molina, UnitedHealthcare, and Wellcare from 2010 to 2017. These purchase price allocations show that health insurance giants spent 14 times more money on intangible assets than tangible ones. Customer-related intangibles accounted for 65% of health insurance M&A deal value.

Customer-related intangibles include both contractual and non-contractual assets. Contractual health insurance customer relationships are active members across all lines of business. Non-contractual relationships include past customers or customers who have terminated coverage for a variety of reasons. Examples of customer intangible assets according to the Financial Accounting Standards Board (FASB) are customer lists, order backlog, current members, and past members.

Not all intangibles are created equal: the top revenue growth performers purchased specific customer intangibles. UnitedHealthcare purchased the most customer intangibles among its competitors but did not achieve the greatest proportionate revenue growth when compared to Molina and Centene.2 In fact, top performers in health insurance buy-side M&A purchased mostly Medicaid customers. Simply buying the most customer-related intangibles did not guarantee the greatest revenue growth.

J&A chose revenue growth as the major indicator of M&A performance because of the health insurance business model. Literature review supports the performance of Molina’s and Centene’s stock prices above their competitors.2 Top performers purchased more Medicaid customers than any other kind of membership. This decision was driven by the Affordable Care Act (ACA).

The ACA increased federal poverty limits for Medicaid, SNAP, CHIP, and TANF populations.3 This increased the volume of those eligible for Medicaid and, therefore, the size of the market. Combined with insurance exchanges and an individual mandate to acquire health insurance, this also increased Medicaid funding for the states.4 The combination of an individual mandate, increased Medicaid spending, and an increase in the Medicaid population allowed health insurance companies like Molina and Centene to outperform competitors in revenue growth. Molina’s and Centene’s premium revenues grew 373% and 934% respectively from 2010 to 2017, whereas all other health insurance companies’ premium revenues increased an average of 109% during the same time period. Molina and Centene made 20 acquisitions specific to Medicaid; all other health plans combined made only four.

A NOTE ABOUT INTEGRATION: Creating Long-Term Value From Purchased Intangibles

Not all health insurance members are equal since not all health insurance lines of business are equally valuable at the same time to buyers. The most effective way to perform integration analysis during the buy-side M&A diligence process is to confirm that a company’s definition of customer value overlaps between the buyer and the seller. When possible, data related to Net Promoter Score (NPS) can also be used to identify customer sentiment in a selected target. None of these indicators are contained in the financial statements, and they are generally outside the investment banker’s due diligence process. However, buyers, bankers, and advisors must utilize these tools to identify and acquire the intangibles that are needed. The importance of integration is supported by J&A’s health insurance M&A analysis showing 87% of the top performers purchased companies in regions where the buyer had existing operations. Growing in existing markets was more attractive than expanding to new markets.

J&A’s Recommended Strategy for Health Insurance Buy-Side M&A

Phase 1: Identify
A buy-side M&A that is integration focused
  • Determine how customer intangible performance is measured
  • Understand market and regulatory dynamics
  • Create integration plans based on acquired intangibles
  • Set evidence standards for buy-side M&A decision-making
Phase 2: Develop
Buy-side M&A execution driven by intangible assets
  • Create an acquisition target and due diligence process to confirm intangible synergy is present
  • Solicit acquisition targets
  • Conduct intangible and tangible asset due diligence
  • Negotiate purchase prices through transparent value identification
  • Close deal
Phase 3: Monetize
Acquisition integration resulting in accelerated accretion
  • Utilize pre-built integration artifacts confirmed through the buy-side M&A process to inform stakeholders
  • Integrate targets based on corporate strategy

Examples for Health Insurance M&A

When customer contracts are the most important asset

Finance-Focused KPIs
  • Customer acquisition costs (CAC)
  • Customer lifetime value (CLTV)
  • Percentage of marketing spend that is digital
  • Percentage of revenue generated from digital channels
  • Profit margin by LoB
  • Cash on hand
Customer-Focused KPIs
  • Net Promoter Score
  • Error rates
  • Policy renewal rate
  • MTM (blues plans only)
  • First contact resolution rate
  • Regulatory changes

PHASE 1: Identify How Customer Intangible Performance Is Measured

Since J&A’s research revealed that health insurance M&A dollars are mostly spent on customer-related intangibles, health insurance buyers must take care to make sure their buy-side process recognizes this by measuring the intangible assets that matter before, during, and after a deal is closed. The first step in identifying the intangibles that will drive value is to understand internal corporate strategy. In the case of Molina, the buyer used an existing competitive advantage of serving Medicaid populations to expand its market share. Other top-performing examples include Cigna’s acquisition of Great American Supplemental Benefits to increase cross-selling and up-selling opportunities to Cigna’s already large population of members. All top revenue performers purchased homogeneous customer intangibles and customer lists.

These findings show companies must determine which lines of business are most profitable, which ones are best positioned for growth, and how that growth and success are internally measured. Successful buy-side M&A starts with applying internal growth measurement standards to the target’s intangibles during the process.

PHASE 2: Develop an Acquisition Target and Due Diligence Process to Confirm Intangible Synergy Is Present

Tools like Net Promoter Score (NPS) or customer service ratings are often bullet points for marketing that are managed by a few business leaders who invest in improving the scores. But these metrics show important information about how customers perceive the value of their health insurance provider. Not utilizing these metrics during the buy-side process will lead to poor intangible reporting and, therefore, increased risk of a failed acquisition.5,6

Jahani and Associates has provided examples of how to use CLTV, CAC, NPS, and regulatory strategy analysis to make better health insurance buy-side M&A decisions. These examples are not limitative, and many others should be considered to minimize the risk of derailing the M&A process.

PHASE 3: Monetize Intangible Assets Through Better Integration to Create Lasting Returns

Through all of this, buyers can integrate their targets more seamlessly post-acquisition by measuring the most important assets before a deal is signed.

Intangible assets matter most, and customer-related intangibles matter most to health insurance buyers. Health insurance buyers must run a buy-side M&A process that integrates this intangible reality into the entire process.

For a health insurance M&A acquisition to be successful, purchased intangibles must create tangible value. The only way for buyers to accomplish this transformation is to remain disciplined and diligent during the integration process. This integration process is completely dependent on what is measured and acquired. Knowing what to measure and how to measure are two key factors to creating a winning strategy. Ignoring these facts exacerbates the two challenges stated earlier: overstated or overambitious executive goals and the lack of intangible asset reporting or understanding that leads to failed acquisitions.

Removing the disconnect between traditional M&A buy-side practices and intangible reporting can dispel negative consequences from overstated executive goals during the M&A process. In the age of the intangible economy, typical reporting is inadequate. Buyers must take careful and deliberate steps to develop a better understanding of intangibles in order to drive M&A performance. Mergers and acquisitions fail to create desired value when post-merger integrations do not perform. By focusing on intangible assets, buyers can collect and analyze key integration activity and information before a deal is closed. By collecting intangible asset information upfront, buyers will conduct a more precise M&A process and maximize shareholder returns. Buyers should determine their buy-side M&A goals, then utilize Jahani and Associates’ strategy during scouting, solicitation, diligence, closing, and integration.

Examples of J&A’s Approach for Health Insurance M&A

Customer Lifetime Value (CLTV)

Why It Matters

Health insurance companies should utilize lifetime value principles to determine the best membership populations to buy and integrate. More importantly, the definition of customer lifetime value must align between the buyer and the target. This alignment must be determined before the health insurance M&A acquisition is closed. Fundamental differences in defining success and value cause significant barriers to accretion and effective integration.6,7

CLTV is a balance of the revenue generated and costs needed to service a customer. Therefore, both cost savings and revenue growth factors are relevant to CLTV calculations. Insurance companies spend significant sums of money on customer service. CLTV can show buyers the efficacy of dollars spent and identify areas for potential cost synergies.

Driving Questions Used for Buy-Side M&A Decision-Making

  • What method is being used to calculate CLTV?
  • How much time is required to achieve a positive return on investment (ROI)?
  • What revenue sources are inputs for CLTV?

What Buyers Should Remember

There are many models and methodologies used to measure customer lifetime value. Buyers should remember that the way CLTV is measured is more important than the exact number calculated. Overlaps in measurement methodology, inputs, and outputs will create more synergy post-acquisition.

Customer Acquisition Costs (CAC)

Why It Matters

Customer acquisition costs may be the most important intangible KPI for health insurers. Since health plan revenue is a function of membership and membership is predictable within a calendar year, cost containment is the best way insurers can improve profit margins. Cost reporting and measurement are also essential for current regulations regarding medical loss ratio and risk adjustment standards.

CAC is calculated by dividing total sales and marketing expenses by the number of customers acquired, usually on an annual basis. Much value can be extracted from this by determining the CAC by the line of business.

Driving Questions Used for Buy-Side M&A Decision-Making

  • What method is being used to calculate CAC?
  • What sales and marketing costs create the greatest ROI?
  • Will costs be synergistic?

What Buyers Should Remember

As an example, comparing digital marketing customer acquisition and traditional marketing customer acquisition can give buyers insights into cost synergies. Based on this information, buyers can then decide on this information if the target has a proven customer acquisition strategy that is in line with the mandate.

Net Promoter Score (NPS)

Why It Matters

Raw NPS data is usually available upon request. Reviewing NPS shows the buyer what kind of customers were surveyed, where they were surveyed, and how they were surveyed. Comparing the target’s information to the buyer’s provides tremendous insight into how customer relationships are maintained and managed.

Due to the increased retailing of the health insurance industry, customer service has become an increasingly expensive cost center. Because investments in customer service are represented as costs on financial statements, diligence is required to make sure investments generate results and that those results overlap with the same success factors of the buyer’s internal systems. The costs to generate meaningful intangible assets should be treated differently than costs with less impact.

Driving Questions Used for Buy-Side M&A Decision-Making

  • How is NPS data collected?
  • How do profiles of promoters and detractors between the buyer and the target overlap?
  • Are there customer service insights contained in NPS data?

What Buyers Should Remember

Customer service metrics can be tricky to compare if they are not calculated the same way. Buyers need to make sure they are speaking the same language as the target in terms of the definitions of KPIs such as NPS; this goes beyond the number itself.

Regulatory Strategy

Why It Matters

The United States health insurance market is a common political topic and a pillar in party platforms. Due to this, political changes influence the health insurance market through regulation. Medicaid growth in the United States is an example of this. Additional examples are the ACA, the creation of Medicare in 1965, and President Trump’s recent proposals to change Medicaid, CHIP, and the ability for health insurers to sell across state lines.

Therefore, no health insurance buy-side strategy is complete without regulatory analysis. Health insurers should monitor political dynamics with careful consideration of which healthcare policies will survive multiple election cycles. Court decisions, such as National Federation of Independent Business v. Sebelius in 2012, and litigation are the best indicators for which policies will endure. National Federation of Independent Business v. Sebelius solidified many of the regulations passed in the ACA.8,9

Driving Questions Used for Buy-Side M&A Decision-Making

  • What political changes will happen in upcoming election cycles?
  • What healthcare changes have been upheld by courts and what changes are political hyperbole?
  • How will technology and regulation influence each other?

What Buyers Should Remember

Healthcare regulation changes constantly. Campaign promises are not always implemented into law. Buyers must find strategies for growth that are difficult to politically influence. This minimizes risk and can lead to lasting returns no matter the political climate.

A Word of Caution Regarding Customer Service Performance Indicators

Jahani and Associates recommend health insurance M&A buyers use KPIs such as Net Promoter Score and other customer service quality metrics to evaluate acquisition targets. As stated earlier, analysis should focus on methodology and not on the actual numerical values. There is no conclusive evidence that the scores of customer service KPIs directly correlate to stock performance. These intangible metrics do provide valuable insight into customer-related intangibles. J&A does not suggest that similar KPI numbers create revenue, cost, or operational synergy but that similar KPI measuring methodologies do.


In 2018, Jahani and Associates reviewed 62 significant health insurance M&A acquisitions and recorded their purchase price allocations. Information was only collected from publicly available data sources. Intangible-asset pro formas were taken from Securities and Exchange Commission (SEC) reports only. J&A also surveyed over 34 business leaders from health insurance companies to understand how executives used intangible asset reporting to make business decisions.


Jahani and Associates (J&A) is an independent investment bank located in New York City. The firm specializes in healthcare and technology and provides specialized M&A and capital markets advisory services. The combination of J&A’s unmatched skills in technology, engineering, and business operations allows the firm to create sustainable value for its clients. J&A works at the intersection of cutting-edge financial theory and business practicality. Creativity is highly valued within the firm which allows J&A to continually improve the way businesses thrive.


6. Hao Jiang, “Institutional Investors, Intangible Information, and the Book-to-Market Effect,” Journal of Financial Economics 96, no. 1 (2010): 98-126.

7. Alex F. De Noble, Loren T. Gustafson, and Michael Hergert, “Planning for Post-Merger Integration—Eight Lessons for Merger Success,” Long Range Planning 21, no. 4 (1988): 82-85.

8. Yaakov Weber and Shlomo Tarba, “Exploring Integration Approach in Related Mergers: Post-Merger Integration in the High-Tech Industry,” International Journal of Organizational Analysis 19, no. 3 (2011): 202–221.

9. “Centers for Medicare & Medicaid Services (CMS) Medical Loss Ratio (MLR) Annual Reporting Form Filing Instructions for the 2016 MRL Reporting Year,” Centers for Medicare & Medicaid Services, 2016, accessed January 3, 2019.

Copyright 2019 Jahani & Associates. All rights reserved.

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