Investment bankers and M&A brokers know how to create competition for healthcare business sales. Successful buyers have to outperform competitors on 10 deal milestones.
This list is not sequential. Many of these items should be addressed concurrently.
1) Gauging initial organizational willingness, fast: If there is not a willing buyer, then there is no transaction. Ideally, the vice president of business development should have a direct line to the leadership. If the leadership’s initial answer is absolutely not then there is no reason to waste a seller’s time.
2) Signing confidentiality agreements, fast: The confidentiality agreement (CA) is a firm dependency that holds up everything that follows. The optimal solution is to have a template CA with pre-approved legal language. If counsel has to get involved in every CA that comes along, you can lose valuable time advantage to more responsive competitors.
3) Performing preliminary reviews, fast:
Nurses, staff physicians, managed care, billing, and medical leadership have to be reluctantly pulled away from day-to-day operations when special expertise is needed.
You may consider augmenting your bench with outside consultants if you don’t have fast access to subject matter experts inside your organization.
4) Procuring organizational approvals, fast: Sometimes deals don’t get done simply because the finance committee had to choose between multiple investments. Finance and capital committees, senior leadership, and boards of directors should start getting briefed as soon as preliminary information starts arriving.
5) Executing Letter of Intent, Memorandum of Understanding, fast: Senior leadership should be firmly on board before a buyer organization signs an LOI or MOU to enter into an exclusive due diligence phase. At this stage, the business development team should have a strong recommendation, and there should be clear consensus as to why the buyer should do the deal.
6) Engaging in house or outside counsel, fast: Special projects can disrupt the day-to-day responsibilities of a company’s subject matter experts, including inside counsel. Outside counsel can help move the process along expeditiously if in house counsel’s plate is full.
7) Performing due diligence, fast: Many hospitals try to pull together ad hoc, cross-disciplinary teams for M&A projects. However, the novelty effect can quickly wane as team members take on a lot of extra work in addition to their regular jobs.
Private equity buyers regularly engage consulting firms like McKinsey & Company or Bain & Company to prepare due diligence reports for $200,000 or more. According to their government contracts, fees start start at $110,000 per week for Bain and $120,000 per week for McKinsey.
8) Performing a valuation, fast: Counsel may recommend that an appraisal be performed for healthcare-related regulatory compliance purposes. However, disagreements on sale price can result in lengthy negotiations with each party retaining opposing valuation experts. Having both parties co-engage one firm to perform a valuation can move the process forward faster.
9) Negotiating a purchase agreement, fast: It is standard practice for the parties to agree to work with a concise term sheet during negotiations. Their attorneys usually email a draft purchase agreement back and forth with their redlined changes for several volleys until disputed language and terms are resolved.
10) Closing, fast: Transactions are not final until everyone signs on the line, consideration (money) is paid, and the checks clear. Deals fall apart at the closing table all the time. Last minute renegotiations make buyers and sellers take serious pause and consider the commitments they are about to make. When deals fall apart at closing after real money has been spent on due diligence, counsel, and consultants, it is not uncommon for one party to seek monetary reparations from the other party.
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HCTadvisor provides healthcare-focused business data. Contact HCTadvisor today at (303) 800-6444.