In recent years, healthcare mergers and acquisitions increased significantly. According to a Fierce Healthcare report, the number of mergers rose to roughly 3000 in 2021. This represents a year-over-year rise of 25%.
When executed well, mergers and acquisitions in healthcare offer great value to all stakeholders. For the facilities, it creates strategic, financial, and operational value. And from the economies of scale that follow, patients enjoy better and more affordable services.
While an acquisition may present great fortunes for your healthcare facility, there are some potential pitfalls.
Read on to learn the key things you should know as you venture into a healthcare acquisition deal.
1. Closing an M&A Deal Will Take Longer Than You Think
The first thing to know is that completing an acquisition is often lengthy. There are many moving parts and stakeholders involved, so it can take months or even years before everything is finalized.
This means you need to be patient and have a good team to manage the process. Trying to rush things will only increase the chances of mistakes being made.
2. Prepare for the Buyer’s Due Diligence
Once you’ve decided to move forward with an acquisition, the next step is to prepare for the buyer’s due diligence.
This is when the buyer will take a close look at your facility’s financials, operations, and management team. They’ll also want to understand your growth prospects and how the acquisition will impact their business.
To prepare for this, you need to ensure that your financials are in order and that you understand your operations well. You should also put together a team who can answer the buyer’s questions and address their concerns.
3. Hire an Investment Banker
If you’re serious about completing an acquisition, then you need to hire an investment banker.
An investment banker can help you navigate the process and ensure that you get the best possible deal. They can also help you find potential buyers and conduct due diligence on their behalf.
Investment bankers work on a contingency basis, so you only have to pay them if the deal is successful.
4. Get Help From a Lawyer
Acquisitions can be complex, so you must have a lawyer on your side who understands the process.
A lawyer can help you with things like negotiating the terms of the deal, reviewing the contracts, and ensuring that all the necessary paperwork is in order.
They can also help you protect your interests and ensure that you don’t make any mistakes that could jeopardize the deal.
5. Don’t Get Trapped at the Letter of Intent Stage
One of the biggest mistakes that healthcare facilities make is getting trapped at the letter of intent (LOI) stage.
An LOI is a non-binding agreement between the buyer and seller that outlines the terms of the deal. It’s typically used to gauge both parties’ level of interest and start negotiations.
While an LOI can be useful, it’s important to remember that it’s non-binding. This means that either party can walk away from the deal at any time without consequences.
However, remember that you have greater bargaining power before signing the LOI. So, even if the buyer presents it as a mere formality, ensure that the terms are not unfavorable.
For instance, some buyers add an exclusivity clause to the LOI, which prevents the seller from shopping the deal around with other potential buyers. This essentially takes away your negotiating power and puts you at a disadvantage.
If you’re presented with an exclusivity clause, ensure that it expires after a reasonable period (e.g., 30-60 days). You can also try to negotiate for a “break-up fee,” which the buyer pays if they walk away from the deal.
6. Merger Acquisition Valuation is Negotiable
Once the due diligence is complete, it’s time to start negotiating the terms of the deal.
This is where having a good team in place is critical. You need people who are experienced in negotiating M&A deals and understand the healthcare industry.
You also need to be realistic about what you can expect to achieve in the negotiation. The buyer will want to get the best deal possible, so don’t expect to come away with everything you want.
Be prepared to give and take on key issues like price, terms, and conditions. And remember that the goal is to reach an agreement that’s fair for both parties.
The best way to do this is to clearly understand your goals for the deal and what you’re willing to compromise on. This will help you stay focused during the negotiation and avoid making any concessions that you’ll regret later.
Moreover, you should also be prepared to walk away from the deal if it’s not in your best interest. This can be difficult, especially if you’ve been working on the deal for a long time, but it’s important to remember that there are other opportunities out there.
7. Make Sure the Acquisition Agreement is Definitive
Once you’ve reached an agreement with the buyer, it’s important to make sure that the acquisition agreement is definitive.
A definitive agreement is a binding contract that outlines the terms of the deal and commits both parties to complete the transaction.
If you’re not careful, it’s easy to make mistakes when drafting the agreement. For instance, you might accidentally leave out key terms or include provisions that are favorable to the buyer.
To avoid this, it’s important to have a lawyer review the agreement before you sign it. They can help you identify potential problems and ensure that the terms are fair.
Keep Building the Right Team
Acquisitions can be a great way to grow your healthcare business. But they’re also complex and risky. So, before you enter any deal, you must do your homework and consult with experienced professionals. By taking the time to prepare, you can increase your chances of success and avoid making costly mistakes.
As you prepare for your acquisition, continue spearheading your facility’s growth with top talent. Vitalis Consulting is here to help you find the perfect candidates for your organization. Get in touch with us today to learn how we can boost your talent search.