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Insights on Issues & Trends that Impact Investments in Healthcare & Life Science Businesses

Dermatology Investment: Getting Staffing, Compensation, and Physician Benefits Just Right – 5 Key Takeaways

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses dermatology investing. It is authored by our colleagues Royce DuBiner, Timothy Fry and Holly Buckley.

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Dermatology Investment: Getting Staffing, Compensation, and Physician Benefits Just Right – 5 Key Takeaways

By Royce DuBiner, Timothy Fry and Holly Buckley

Investing in a dermatology practice requires thoughtful programs to incentivize partner physicians and align care patterns. Focusing on patient and provider happiness is vital to the long-term viability of an investment in the dermatology space according to a panel of experts who addressed attendees at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 21 and 22.

Experts included Francis Acunzo, CEO & Partner – Acara Partners; Samarth Chandra, Managing Partner – Enhanced Healthcare Partners; Alejandro Fernandez, Chief Executive Officer – NavaDerm; Daniel Groisser, M.D., Medical Director & Executive Chairman – The Dermatology Group; and John Pouschine, Co-Founder & Managing Member – Pouschine Cook Capital Management, LLC. Timothy Fry, attorney at McGuireWoods, LLP moderated the panel.

Here are five key points from the panel discussion.

1. Get creative on compensating your clinicians. There is a great deal of competition out there from large practices for talent/physicians. Yet most compensation is within a fairly standard, market range. Creative alternatives may assist the physician recruitment process. Residents may be looking beyond a paycheck for other benefits such as a down payment on a home or help with their family care. Investor-backed practices need to consider the unique attributes within a compensation and benefits package. What can the platform provide different from the recruit’s other options? Additionally, consider non-physician employees. What is in it for them? Some investors are actively considering models where physician assistants can also participate in the platform’s upside, through either stock investment or bonuses.

2. Research attracts talent. Many physicians are looking for something more than just a traditional office-based clinical experience. Some want to continue their academic interests and strengthen the practice of dermatology. Running clinical trials or rotations supervising residents can allow physicians to stay academically engaged. It can also help attract top talent and can boost the credibility of a practice in its community. Further, such programs may provide additional revenue for the practice.

3. Compensation is just one aspect of retaining talent. It may be cliché, but doctors coming out of school today are not the same as they were 20 or 30 years ago. Many physicians want some degree of work-life balance in order to raise a family and do not want to work a 12-plus hour day. Some practices create schedule flexibility for physicians to pick up and drop off their kids at school. Some physicians may want evening or weekend hours that can also benefit patients. At the same time, many physicians may be hesitant to invest their savings (or have significant student loans) right out of school to establish a new practice. Platforms may want to develop a schedule and practice around physician needs, as well as equity opportunities to retain key personnel long-term.

4. Know your market before adding cosmetic services. Self-pay cosmetic and spa service models do not work everywhere and may not work for all practices. Not knowing the practice’s patient base could create a large cash outlay on new equipment and marketing a service that will not work well. Additionally, consider what practice physicians want. If a physician group is not on board with cosmetic and spa services, it will be hard to derive a return on investment by adding cosmetic services. Instead, ask what physicians want to offer their community through practice offerings, which could be sub-specialty practices or linking dermatology with podiatry and other primary care offerings.

5. Physician assistants work well, but not all the time. Physician assistants, particularly those with dermatology training, can help practices give patients faster access to care and more available follow up appointment times. Such employees are cheaper to recruit but not all practices need a physician assistant and not all physician assistants are the same. Some physician practices do not have the volume to justify hiring many physician assistants. Having too many physician assistants may limit the ability for a patient to get to know the physicians – making the patient more likely to leave for care from a different practice. Further, some doctors do not want to work with a physician assistant and may not utilize one if assigned. Worse, many physicians worry investor-led practices will seek to replace them with this cheaper alternative – creating skepticism of intentions. Significant communication may be necessary for a practice to use this tool to improve care access and so it should not be seen as a simple fix for not having enough physicians on staff.

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R&W Insurance: A Market Update

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses representations and warranties (R&W) insurance. It is authored by our colleagues Cindy Lu and Ann Dorsett.

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R&W Insurance: A Market Update

By Cindy Lu and Ann Dorsett

The R&W insurance market has evolved dramatically over the last several years, according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 20.

Experts included A.J. Kritzman, Senior Underwriter-Transactional Risk Insurance at Tokio Marine HCC, Gary Lewis, Managing Director at Cascade Partners, LLC, and Michael Wakefield, Vice President, Financial Services Division at McGriff, Seibels & Williams. Ann Dorsett, Counsel at McGuireWoods LLP moderated the panel.

Here are five key points from the panel discussion.

1. Activity in the R&W insurance (RWI) market has increased and evolved dramatically in recent years. In 2009, the industry saw forty policies with an average deal size of $15 million, and in 2018 there were 1,600 policies with an average deal size of $950 million. Just a few years ago, almost every deal required one percent retention unless the deal size was under $40 million. Today we encounter many deals with no seller indemnity. With all of this new activity, law firms have RWI specialists where such a position did not exist as of three years ago.

2. The RWI market for healthcare deals saw an upward trend in activity, and insurers that previously did not participate in this industry are now underwriting policies. Last year it was difficult to place policies for healthcare entities with significant governmental payors, but today the market consistently covers investments with Medicare and Medicaid reimbursement. Insurers expect that compliance issues, such as HIPAA, Stark, and AKS, have been sufficiently diligenced and that a billing and coding audit is performed by a reputable outside vendor when necessary.

3. There is a growing trend for buyers and sellers to seek RWI quotes at the pre-LOI stage. Sellers use quotes as an indicator to prospective bidders that coverage is attainable. Buyers seek quotes to make their bids more attractive. Pre-LOI quotes are not a guarantee of full coverage, however. Insurers still expect buyers to perform due diligence, and subject to that due diligence, there may be exclusions to coverage.

4. Currently, few insurers will cover breaches that occur or are discovered during the interim period (in transactions that are not simultaneous sign and close). Experts do not believe this will change as the current underwriting process is not set up to incur such risk.

5. The market is maturing and claims are being presented against policies. It will be interesting to see how such claims are treated and processed. The biggest hurdle confronting claims presentation remains proving the amount of damages actually incurred as a result of a breach, especially when the valuations rely on multiples of EBITDA.

Reimbursement Trends for Facility Investments: New Ways to Look at Shifts in ACOs, Bundled Payments and Value Based Purchasing and Other Developments – 3 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses reimbursement trends for healthcare facilities. It is authored by our colleague Ben Petitto and Matt Wolf of RSM US LLP.

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Reimbursement Trends for Facility Investments: New Ways to Look at Shifts in ACOs, Bundled Payments and Value Based Purchasing and Other Developments – 3 Key Points

By Ben Petitto, McGuireWoods LLP, and Matt Wolf, RSM US LLP

Investors in healthcare facilities – namely health systems, hospitals, long-term care facilities, surgery centers and behavioral health facilities – face many challenges in the current march towards value based care and payor integration but healthcare facility investments can still succeed in this environment if healthcare facilities diversify their specialty practice areas and commit to a forward-thinking payor contracting strategy, according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 20th.

Experts included Tushad Driver, Vice President at Gray Matter Analytics, Inc., Conor Green, Partner at TT Capital Partners, LLC, Brian Fortune, President at Farragut Square Group, and Michelle Werr, Principal at HealthScape Advisors, LLC. Matt Wolf, Director and Health Care Senior Analyst at RSM US LLP moderated the panel.

Here are three key points from the panel discussion.

1. Successful healthcare facilities are moving quickly to build strategies around value-based payor contracting. Blue Cross Blue Shield of North Carolina recently announced they would be instituting value-based contracts with all five major hospitals in North Carolina. Due to the dynamic nature of this new wave of value- based reimbursement and narrowing networks, healthcare facilities must critically evaluate which payors to target so they do not end up in a losing arrangement. The most successful value-based or bundled programs are excellent at standardizing care across an episode of care. Coordinating providers and facilities throughout the patient’s episode of care is key to achieving this crucial standardization. The panel agreed that while fee for service contracting is not going away anytime soon, the time is now for healthcare facilities to be evaluating potential relationships with payors for value-based care.

2. Payors are demanding that healthcare facilities provide more than just scale and a contractual partner; they want to see facilities adding value in other areas of the relationship. They want facilities to develop a varied reimbursement stream, provide risk management, and increased clinical effectiveness and efficiency. All these value-added functions are especially able to drive synergies in the bundling and population health arrangements and they can assist in aligning goals between the parties.

3. Healthcare facilities must continue to focus on high performing providers and diversity of specialties in order to receive the best possible reimbursement contracts with private payors. As younger physicians enter into private practice, they are less interested in the hassle of owning their own practice and more likely to seek out employment by a large group (either a physician group or hospital-based group). Healthcare facilities must be able to attract these doctors to their platform by offering a more balanced lifestyle and long-term incentives. Having a wide diversity of specialties is also attractive to payors when negotiating with healthcare facilities. The diversity of reimbursement streams is desirable for the facility investors, and the payors value the choices they can provide to their members in these networks. Some specialties such as dermatology, allergy, and ophthalmology may even allow healthcare facilities to break into cash pay and completely bypass the payors in some cases.

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Advanced Issues for Provider Practice Management Transactions and Platforms in a Competitive Landscape – 4 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses provider compensation decisions and processes. It is authored by our colleagues Daniel Goldstein and Bart Walker.

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Advanced Issues for Provider Practice Management Transactions and Platforms in a Competitive Landscape – 4 Key Points

By Daniel Goldstein and Bart Walker

Taking a thoughtful and forward-looking approach to provider compensation decisions and processes can be key to growing a successful provider platform, according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 20.

Experts included Sean Dempsey, Partner, Sheridan Capital Partners, Amy Dordek, Co-Founder and former Chief Revenue Officer, GrowthPlay and Joshua Gwinn, Chief Executive Officer, Hero Practice Services. Bart Walker, a partner at McGuireWoods LLP, moderated the panel.

Here are four key points from the panel discussion.

1. Compensation needs to be responsive to the market and to providers’ needs. Private equity sponsors and executives cannot come in to a provider platform with expectations of changing compensation without paying attention to how the rest of the market compensates providers, especially if there are significant competitors and other trends in the marketplace. Whether the market supports a percentage of collections model, a straight salary model or some combination, simpler and more straightforward (and therefore, easier to explain and understand) is often better. That said, it is often necessary to offer more complex compensation offerings to more senior providers.

2. Addressing student debt is becoming an increasing priority for providers who are recent graduates. As a result, many younger providers are looking for salary guaranties or debt repayment programs offered as a part of their benefit programs. To the extent that provider platforms take this into account in their compensation and benefits structure, it can give them a competitive edge when recruiting. These younger providers have a tendency to spend money faster and turnover more often, so debt repayment programs can be used as a retention tool.

3. Maintaining and protecting a successful culture needs to be prioritized, including in the areas of acquisitions and compensation. This means that acquisition targets that will be difficult to adapt may not always be successful. With respect to compensation, benefits and advancement, being consistent and transparent with how decisions are made is important. For example, if equity is being offered to providers, a consistent approach needs to be made to avoid confusion or accusations of favoritism.

4. Aligning interests is important, but equity is not always the best way to carry this out. Although equity can be very good at aligning the interests of private equity, management and providers, it is more difficult to provide equity to providers who did not sell a practice (and therefore receive rollover) or as time progresses and the value of the equity becomes increasingly expensive. As such, although the tax rates are less preferable, use of bonus programs and synthetic equity offerings can also successfully align the interests of providers.

 

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Alternative Lending Approaches: 6 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses approaches to alternative lending. It is authored by our colleagues Carmelo Chimera, Mark Kromkowski and Donald Ensing.

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Alternative Lending Approaches: 6 Key Points

By Carmelo Chimera, Mark Kromkowski and Donald Ensing

Increased liquidity in financial markets has made the healthcare sector more attractive than ever to traditional lenders. But according to experts who spoke on a panel at the 16th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 20th, small to mid-sized lenders and debt-focused funds have greater flexibility with transaction structures that can involve debt, equity, or some combination thereof. This flexibility allows these lenders to remain competitive, increases the number of potential transactions, and provides creative client-centered lending solutions.

Experts included Neil Johnson, Managing Partner at Lawrence, Evans & Co, LLC; Dave Philipp, Managing Director at Crestline Investors, Inc.; Todd Roland, Principal at GCM Grosvenor; and Brian Yoon, Principal at Corbel Capital Partners. Donald Ensing, a partner at McGuireWoods LLP, moderated the panel.

Here are 6 key points from the panel discussion:

1. Increased liquidity in the marketplace has led to more traditional lenders entering the healthcare space because it is considered “safer” than areas like retail or energy, which can be volatile.

2. The healthcare market continues to grow along with scientific advancements in areas like anti-aging, health and wellness, behavioral health, substance abuse, and any area where tech-enabled solutions are innovating care.

3. Mezzanine loan structures with sponsor level support allow capital to reach portfolio companies that need it most despite being the least credit worthy.

4. Incorporating aspects of private equity into lending structures creates added value for clients, like long-term relationships in which lenders can be brought in at a pre-deal stage in anticipation of financing requirements.

5. Utilizing Small Business Investment Company (SBIC) leverage allows small to mid-size funds to deploy capital more quickly and easily.

6. EBITDA is a traditional screening method, but doesn’t capture everything relevant to making a lending determination, particularly with respect to free cash flow. EBITDA is especially unhelpful in cases with certain project-based or CapEx heavy businesses.

Investor Interest in Orthopedics – 5 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses investing in orthopedics. It is authored by our colleagues Alyssa Campbell and Amanda Roenius.

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Investor Interest in Orthopedics – 5 Key Points

By Alyssa Campbell and Amanda Roenius

Orthopedic practices offer a compelling opportunity for private equity investment and are likely to see significant interest from funds in the near future, according to experts who spoke on a panel titled “Investor Interest and Experience in Orthopedics” at the 16th Annual Healthcare and Life Sciences Private Equity & Finance Conference, held in Chicago on February 20 and 21, 2019.

Experts included Larry Barr, Senior Vice President at Kinsella Group, Kevin Becker, Vice President at LLR Partners, Mike Horrell, Principal at Foundation Surgical Affiliates, Michael J. Milne, M.D., Founder and Former Chief Executive Officer at Motion Orthopaedics, and John C. Riddle, Managing Director and Principal at Brown Gibbons Lang & Company. The panel was moderated by Amanda Roenius, an attorney at McGuireWoods LLP.

Here are five key points from the panel discussion.

1. Investments in orthopedic practices may be the next major wave in private equity; however, this space poses unique challenges for investors. Private equity firms have experience investing in the orthopedic medical device space and are starting to see the opportunities in orthopedic practices with more clarity. This space is highly fragmented, offering significant opportunity for profit generation, but it also presents unique challenges not seen in other medical specialties. For example, the panelists noted that orthopedic practices typically rely on a more complicated and diverse payor mix than other healthcare sectors. Furthermore, orthopedic practices have not historically relied on outside investment for growth, utilizing their own capital to expand and develop practices. Accordingly, while the orthopedic space may be an especially desirable specialty from a revenue perspective, private equity investors will need to adapt to this sector’s unique characteristics to succeed.

2. Competition is healthy and steadily increasing. Private equity firms are not the only groups with an eye on the profitability potential associated with investment in orthopedic practices. Hospitals have long tried to break into this space, with orthopedic physician groups having long resisted outside investment. Reception to private equity investment will require firms to bring innovation and value to orthopedic groups beyond mere capital infusion. Panelists believe competition for investment in profitable practices will continue to strengthen as down-stream revenue, largely evidenced through increasing ancillary services, continues to grow.

3. Investments are costly. As investors look toward orthopedic practices as potential targets, the price for investments of scale reflects the demand. Market EBITDA multiples in the orthopedic space are in double digits, with multiples increasing from tens to high teens as auction rounds progress. These higher multiples are rationalized by the organic growth possibilities associated with orthopedic practices as well as the opportunities for strategic tuck-in transactions.

4. Orthopedic compensation models and team structures present unique challenges for investment. As the experts explained, orthopedic practice groups have entrenched “eat-what-you-kill” compensation models, and the introduction of RVU-sharing models have been met with resistance by senior partners. To achieve profitability, private equity firms will need to strategically navigate transitioning these compensation and incentive models toward structures that are both effective in creating revenue growth and feasible to implement within established orthopedic practice teams.

5. Inorganic growth opportunities are untested. The probable success of tuck-in or bolt-on acquisitions to established orthopedic platforms is substantially unknown. Historically, orthopedic groups have generally grown organically. As discussed amongst the panelists, the current theory held among investors is that target practices should be geographically dense. The key to tuck-in or bolt-on success will be dependent on a firm’s ability to infiltrate markets where such regional density can be built. While exit strategies and future sales are also largely untested, the panelists noted that continued consolidation of orthopedic practices looks promising.

Analyzing DuPage Medical Group’s Success as a Multi-Specialty Practice Platform: 4 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses the success of DuPage Medical Group. It is authored by our colleagues Scott Becker and Diana C. Castro.

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Analyzing DuPage Medical Group’s Success as a Multi-Specialty Practice Platform: 4 Key Points

By Scott Becker and Diana C. Castro

Formed in 1999, DuPage Medical Group (“DMG”) has since grown into one of the largest and most successful multi-specialty physician groups in the United States with annual revenues of a billion dollars. At the 16th Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 21 and 22, a panel composed of Craig Frances, Managing Director at Summit Partners, who is widely regarded as a pioneer and godfather of healthcare private equity investing, Michael Kasper, Chief Executive Officer at DuPage Medical Group, and Scott Becker, Partner at McGuireWoods, presented an introspective look at DMG’s multi-specialty practice platform success story, analyzed various physician practice trends in the market, and discussed a wide range of healthcare investing issues.

Here are four key points from the panel discussion.

1. Physician leadership is key. In reflecting upon the characteristics that have contributed to DMG’s growth and continued success, Michael Kasper and Craig Frances identified physician leadership as an essential component, noting that it is critical for the physicians in an independent multi-specialty medical group to believe in the mission and objectives of the group.

2. A tilt in growth strategies towards organic expansion. In addition to engaging in platform acquisitions and aqui-hire strategies in the Chicagoland area, DMG is focusing its growth strategies on hiring physicians who share in the mission and values of DMG. To do so, DMG has invested resources to develop a pipeline of recent medical school graduates to join the organization and enhanced its recruitment efforts by, in part, emphasizing DMG’s partnership approach and opportunity to work outside of a hospital umbrella to physicians. DMG credits the focus on investing in physicians while they are still learning and training with a higher return on investment than other traditional growth strategies, especially given that consolidation opportunities in certain markets may be more limited.

3. A shift to value-based healthcare. In preparing for the future, healthcare providers should consider investing resources to prepare for value-based care models. Value-based programs are designed to reward physicians and healthcare organizations for the quality of care they provide to patients, as measured by higher-value outcomes and a reduction in unnecessary interventions. In order to adjust to succeed under value-based reimbursement programs, healthcare providers will need to implement changes in their operations and work strategies. Stressing the importance of value-based care in the future of healthcare, the panelists offered their opinion regarding the greater value to patients in the long term resulting from a shift to provider-based care, as opposed to increased consolidation for improved payor leverage.

4. The future role of telehealth, technology, and creating a transformative patient experience. In closing, the panelists forecasted the ubiquitous role that telehealth in the coming years and the important role that technology companies and social media platforms will continue to have in patients’ daily habits and health considerations by, among other things, encouraging people to consume healthier foods, engage in physical activity, and communicate with healthcare providers. With these changes in mind, Michael Kasper noted that DMG will continue to strive to create a transformative patient-centric experience for its patients by increasing its service lines, sites of care, and physicians who share in DMG’s values and deliver high quality care with excellent customer service.

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5 Things Healthcare Dealmakers Should Know About Florida House Bill 1243

Posted in Healthcare Services Investing

We recently published with our colleagues a piece describing an interesting development that may impact investing in practice management business in Florida, which can be accessed here. Although this potential move by Florida is unusual, the reality is that most states have some unique elements in the transaction pathway, and dealmakers who are savvy about these nuances should be able to successfully structure their deals accordingly with hopefully minimal disruption.

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Shore Capital Closes Third Healthcare Private Equity Fund With $293 Million

Posted in Healthcare Services Investing

Shore Capital announced it has closed its third institutional healthcare private equity fund, Shore Capital Healthcare Partners Fund III, having raised $293 million.

The fund surpassed its original target of $250 million, with investments coming from existing investors and new limited partners The firm indicated the new fund will primarily invest in control buyouts, focusing on microcap healthcare businesses with revenues between $5 million and $100 million.

Shore Capital Partners, founded in 2009 and based in Chicago, pursues investments in the healthcare and food and beverage sectors. The firm has more than $1 billion of equity capital under management.

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Preparing to Exit and Assessing Risk: Compliance Assessments, Financial Metrics and Other Pre-Sale Strategies for Best Positioning Investments

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on how sellers of healthcare companies can increase business value prior to a sale. It is authored by Rebecca Brophy and Greg Hawver of McGuireWoods LLP and Brett Martin of RSM US LLP.

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Preparing to Exit and Assessing Risk: Compliance Assessments, Financial Metrics and Other Pre-Sale Strategies for Best Positioning Investments

By Rebecca Brophy, McGuireWoods LLP; Greg Hawver, McGuireWoods LLP; and Brett Martin, RSM US LLP

Sellers continue to benefit from a robust M&A market and strong availability of credit. Even in a seller’s market, increased value can often be achieved through effectively preparing a company for sale, according to experts who spoke on a panel at the 15th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 21st.

Experts included Greg Hawver, Partner at McGuireWoods LLP, Anthony Catalano, Director, Risk Advisory Services at RSM US LLP, Tom Smith, Principal at Baird Capital, Ed Nakayama, Director at William Blair & Company, and Jeff Rolland, Director at RSM US LLP.

Here are several key points from the discussion:

1. Financial diligence will drive and support valuation. A buyer or investor will very likely perform a quality of earnings review to support the valuation of a business. This will enable the buyer to reduce unknown business risk and better control how known risks enter into the sale process. Having financial records and systems organized and vetted prior to entering the sale process will enable a seller to contribute to a more efficient and focused financial due diligence process, thereby reducing the time to close. Even though buyers will likely perform independent financial review, working with a team of advisors to develop and present a narrative that best positions the seller’s assets (and liabilities) to the market is a sound approach. This narrative (with supporting data) is commonly presented via a short “teaser” document that is distributed widely in the market, a more lengthy “confidential information memorandum” that is distributed to viable bidders and/or in-person management meetings with select bidders.

2. In the healthcare industry, having a buttoned-up compliance program will enable a more efficient sales process. Buyers will look for executive level leadership as it relates to compliance, particularly when the investor is a healthcare focused private equity firm. As part of an increased focus on compliance, the experts noted that sellers should be prepared to discuss regulatory, compliance and related business points in detail, including: (i) the handling of ePatient data/payor data; (ii) coding compared to market; (iii) reliance on reimbursement from high margin ancillary businesses; (iv) regulatory risk and (v) relationships with payors. Again, presenting a narrative around soft points in the business will help increase the value of the business in a sale process. A huge part of this is understanding the business, including regulatory and compliance risks, in detail and having an effective compliance program in place.

3. Cybersecurity is of increased importance to buyers and investors. The experts recommend performing a cybersecurity assessment in advance of a sale process to identify and quantify (and/or address) potential risks related to cybersecurity.

4. Do not underestimate the value of an organized data room and organized legal documentation. The experts recommended ensuring contracts and other legal documentation are up to date, signed and organized so that they can be presented to a buy-side diligence team in an efficient manner. Again, like with other areas of diligence, knowing any corporate, governance or contractual soft-points and being able to explain those to a buyer will ensure a more efficient process and help drive value. Among other things, a buyer will want to review organizational documents, all key contracts and any other legal items that are material to the business. If this information is presented as an organized package at the outset of a sale process, the process will run much more smoothly. More specifically, a seller be able to push for a shorter exclusivity period and sale process if the buyer is not able to use “lack of due diligence” as an excuse for delay.

5. Determine if it’s a good time to go to market. The experts recommend that sellers engage sophisticated advisers to help determine if it’s the best time to go to market and help organize and position around the points referred to above. A good investment banking and legal team can drive value to your business by helping:

  • launch a sale process when the company is likely to obtain its highest value sale;
  • determine the nature and scope of preliminary compliance reviews, including cybersecurity;
  • strategically address and position any known liabilities or other soft-points with bidders; and
  • organize documentation and operations to ensure the seller is ready to answer the sophisticated diligence questions a buyer will be investigating.

Organizing with these teams well in advance of a launch will ensure that a seller has its arms around financial, legal, compliance, cybersecurity and other items that a buyer will heavily review during the diligence process. 

 

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