Corporate Combos: The basics of healthcare mergers and acquisitions

Businesses are started with different objectives. Some businesses are started to expand and grow, while other business are created with the goal to eventually sell the practice.  This is especially true for doctors and dentist who are often bought out by hospital systems or larger groups. That being said, its so important that businesses and entrepreneurs are aware of the asset purchase and selling process in order to diligently protect their interest.

Step 1:

The very first step in the process is simple. FIND THE PRACTICE IN WHICH YOU WOULD LIKE TO PURCHASE. Spend time hunting and searching for the right medical practice or dental group to purchase. Get friendly with people and even spend time meeting with competing practices. While meeting people, your objective is to find out if a practice is looking to sell or if members of the practice are retiring.

Step 2:

After you have identified the company you would like to purchase, spend time evaluating the synergies the merger will bring your organization. A synergy is any effect that increases the value of a merged company above the combined value of the two separate organizations. Synergies may arise in merger for many reasons, such as cost savings or revenue upside due to better use of efficiencies with assets.

Step3:

Consider creating a non-disclosure agreement and providing the agreement to both parties. Often when negotiating and reviewing a company, sensitive information will be revealed. If the parties decided to not engage in business its important that the information which was revealed remains private in order for the seller to have an opportunity to present its company to another potential buyer.

Step 4

Create outlines of the proposed deal . Letters of intent (LOIs) or term sheets allow parties to sketch out key terms quickly before expending resources on a full blown contract. These documents are non binding but allow parties to memorialize key terms in order to make sure each side is on the same page regarding the deal.

Step 5:

Engage a financial advisor in the deal process. Financial advisors are intermediaries and are specialist in processing necessary information when it concerns evaluating a deal. Many times a financial advisor will be able to guide a company merger and acquisition process. Financial advisers often utilize their expertise to examine risks of the transaction and evaluate the target company to be purchased.

Step 6:

The next step is the due diligence process. Due diligence is a vital activity in M&A transactions and may consume several months. During this step its important to check a few things to make sure you do not have any hiccups along the process. Here it’s important to utilize attorneys and financial advisors to make sure the review is done thoroughly. A potential buyer should (1) check the seller’s medical license litigation and complaints, (2) review the practice’s financial statements and tax returns, (3) analyze the seller’s relationship with referral sources, (4) review employment relationships with all employees and independent contractors (5) check for debt and liens and current and potential lawsuits.

Step 7:

 Before ironing out the contractual terms between the two companies, spend time coming up with an integration plan. How will the new company be run? Anticipate and identify problems early in order to eliminate problems that have the potential to delay a deal. Come up with an integration team in your organization who can help with legal, IT, HR, and other various issues that your organization might face.

Step 8:

After you complete the due diligence process and are satisfied the results, the parties should come together to draft an agreement and perform the integration plan outlined in step 7.

Doris Dike, Esq., is the founder and principal the Dike Law Group, a law firm focusing on employment, regulatory, and healthcare transactional law in Frisco, Texas. 

The information presented reflects general information that is current as of the date it was first published. In light of changes that may occur in the health care regulatory and compliance environments, the author’s presentation of this information might become outdated. Please check with your individual legal and/or compliance advisor(s) or contact the DIKE LAW GROUP prior to taking any significant actions based upon the information and advice presented.

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