An M&A process can be a highly complex and stressful experience. Without proper guidance and support, a seller can easily become overwhelmed and find themselves making costly missteps, ultimately jeopardizing their chances of reaching a successful outcome. In order to best position oneself for a future sale, the first question to be addressed should be: “Who can assist in managing the complexities of a sale process?”
M&A Healthcare Advisors is focused on helping lower-middle market clients sell their healthcare businesses by providing expert advisory service and transaction management to empower healthcare owners and operators to focus their attention on maintaining business operations. Our primary goal is to maximize our client’s value in the market. We alleviate the burden of attempting to both manage a business while working through the challenges of an M&A process. We endeavor to give each client the confidence that they are reaching the best possible outcome with our assistance.
As we begin our sell side engagements, one of our primary objectives is to assist with the assembly of a dedicated transaction team that can properly position a client’s company for success. The transaction team members are industry experts spread in legal, clinical, and financial expertise; who each bring a depth and experience of knowledge to the transaction process. In this article, we will address each support role at a high level and how they will assist in reaching a client’s unique M&A goals.
Assembling and Understanding the Transaction Team
A Transaction Team plays a pivotal role in effectively managing the M&A process. Comprising of experts from various disciplines essential to the process, this team collaborates closely with the seller and the M&A Advisor to navigate the intricacies of the transaction and advocate for the best interests of the client.
The Transaction Team’s primary functions include:
- Preparing for a coming sell-side process
- Assisting with the execution of due diligence (before and after the LOI)
- Assessing risks and opportunities throughout the process
- Assisting in negotiations with potential buyers and investors
- Solidifying terms and company value
- Properly structuring the deal
- Ensuring regulatory compliance throughout.
Essentially, along with the M&A Advisors’ direction, they act as the deal's architects, leveraging their specialized knowledge and experience to maximize value and mitigate potential pitfalls for all parties involved during the sale process, providing each client with a sense of security.
There are three main pillars of expertise represented on every Transaction Team. Identifying and involving each of these parties early in the process, ideally prior to engaging in a formal sale process, helps to position a seller to achieve the most favorable outcome.
- Financial – Financial transaction support focuses first on determining prospective value of a business and properly positioning a company for sale, including contributions and analysis to the foundational financial documents of the business. Ensuring the accuracy and cleanliness of Profit & Loss statements, Balance Sheets, and other pertinent financial documents is vital toward establishing trust with prospective buyers. But the financial support does not end at the point of going to market. During the sale process, negotiations with interested buyers will lead to offers and a need for financial data analysis, Quality of Earnings (QOE) preparation and support, closing calculations, tax planning, and numerous other accounting and financial activities; all of which having expert financial support for is vital.
- Legal – Legal support focuses on assisting in preparation for and the execution of due diligence, a critical part of the process where the buyer is systematically assessing every component of the target company. Key to quality M&A legal support is being a problem solver, focused on identifying and collaboratively solving potential road-blocks that can side-track a transaction. Legal support is typically introduced at the Letter of Intent (LOI) stage to assist with reviewing and negotiating offers, solidifying definitive agreements to reduce any post-transaction risk for the seller and ensure continuity with the presented Letter of Intent (LOI), and ensuring appropriate filings are completed for a smooth transition.
- Clinical – Clinical support consists of assessing a healthcare business to identify and confirm its clinical reporting accuracy regarding patient services and quality of care, regulatory compliance, and more. It is essentially that charts and proper healthcare compliance is in place, to reduce the risk of any unexpected complications or findings arising during a buyer’s due diligence efforts. Having clinical third-party support available to assist in the development of the Confidential Information Memorandum (CIM), to properly capture the clinical picture of the business, will assist in providing clarity and transparency to the buyers intending to put forth offers on the business. Often times, aside from transactional support, quality clinical support can increase financial outcomes and reimbursements of a business by improving the quality of clinical reporting done within operations.
Retaining an experienced Transaction Team is crucial to orchestrating a successful transaction. We intentionally use the word “orchestrating” because the M&A process is often dynamic, meaning emerging details can often change the course of negotiations or the strategic approach to problem solving with all parties involved. Additionally, keeping the sale process on track and all parties in line with their proposed milestones requires a team that ensures details do not fall through the cracks. A Transaction Team, lead by an M&A Advisor, develops a strategy for the end-to-end process, which includes a focus on the unique M&A goals for each client.
Understanding the Roles of the Transaction Team
Financial Navigators: Role of Financial Advisors in Steering Success in M&A Transactions
Financial advisors play a multifaceted role in the M&A process. They have early involvement in financial analysis and valuation when preparing the foundational financial documents to be presented to interested buyers. Their role most often includes assessing the company's financial health and potential for growth, ensuring the M&A Advisor managing the transaction has sufficient data to drive value at the height of the market.
Additionally, financial support can assist with due diligence management, ensuring all necessary financial documents and information are organized and readily available for potential buyers to review. When a buyer is conducting a Quality of Earnings during a diligence process, financial advisors can assist with defending any QoE results that run contrary to their understanding and analysis of the business.
Role of Legal Advisors: Guiding Legal Due Diligence
Legal advisors on a Transaction Team provide significant input throughout the entire sale process, with a strong emphasis on effectively navigating the legal review of a due diligence process. Their role commonly consists of providing general legal guidance and perspective on the cadence of the transaction, assisting with the vetting and negotiations of Letters of Intent (LOIs), and ensuring that the drafting and negotiation of definitive documents best protects the seller from any post-transactional risk.
As discussed, the M&A selling process is dynamic. Offers, counteroffers, and changes are constant throughout the process, and each iteration leads to new documents, legal requirements, and negotiations that legal support will be intricately involved in.
"There is no substitute for experience in healthcare M&A. Having an experienced Transaction Team that can support a seller in each unique category will ensure the best chances of reaching a successful outcome."
Role of Clinical Advisors: Assessing the Ways of Doing Business
The healthcare industry has a wide variety of segments with different clinical outcomes measured within each organization. The expertise and analysis of a clinical advisor prior to going to market is essential to ensure a business is operating within compliance, and no unforeseen regulatory challenges will derail a transaction in the middle of a due diligence process. We strongly advocate for early involvement in assessing the clinical aspects of a business to ensure a buyer’s introduction to the company is a positive one.
Some areas assessed by clinical support include evaluating the quality of the patient base and care, reviewing charting procedures and payor regulations, and compliance with state or federal laws like the Health Insurance Portability and Accountability Act (HIPAA). Clinical advisors can assist in assessing care outcomes, relationships with other entities, policies and procedures, and all other documents important to assessing your business's operations.
The purpose of an in-depth clinical assessment is two-fold. Of course, one is to gather the information a potential buyer will likely want and expect during the introduction process. An equally important purpose is to identify areas for improvement to enhance your company's value and to provide input into the clinical operations as a means to reduce any future risk that non-compliance may bring about during a due diligence process.
Bringing it All Together
There is no substitute for experience in healthcare M&A. Having an experienced Transaction Team that can support a seller in each unique category will ensure the best chances of reaching a successful outcome. In our experience, most transactions that fail are due to delays in the process or unexpected information arising during the due diligence process. By engaging a transaction team that can both ensure timelines and milestones are maintained while preliminarily vetting and ensuring all clinical, legal, and financial aspects of the business have been reviewed and any potential challenges disclosed upfront – will lead to a higher chance of reaching a successful outcome.
At M&A Healthcare Advisors, our team has closed numerous transactions by leveraging the expertise of our M&A network to the benefit of our clients. Every M&A process is different, but having a team of expert support available to navigate the intricacies and challenges that arise will pay dividends on the backend.
Delivering Value to Every Client
Selling any healthcare business can be complex, and due to a dynamic regulatory environment, expert level support is vital in navigating the process effectively. Hiring the right combination of transaction support is critical to ensuring the sale process is managed effectively and with your best interests in mind.
One of the often overlooked benefits of a qualified M&A sales team is that the team members are there through the ups and downs over whatever time it takes to complete the deal. We help you stay engaged in what can be, at times, a tedious and even frustrating experience.
M&A Healthcare Advisors are dedicated to adding significant value to every client's journey through the M&A sale process. Contact M&A Healthcare Advisors to learn more about our recommendations for financial, legal, and clinical M&A support.