The U.S. healthcare sector has experienced rapid consolidation over the past two decades. Accelerated by financial challenges that many providers experienced during the pandemic, this trend is likely to continue.
A lucrative and fast-growing target in this segment is home healthcare. Driven by demographic shifts (52 million American’s are now over the age of 65), a growing desire to “age in place”, and the challenges of severe disability, companies are looking to expand their services in areas such as hospice care, non-medical care, and skilled home health.
However, the M&A process for home healthcare is incredibly complex. There is an abundance of critical decisions that must be made before, during, and after the deal.
Here are six things dealmakers should consider.
1. Having a clear investment thesis
Before approaching an acquisition candidate in the home healthcare sector, dealmakers need a good understanding of how the business operates. But perhaps more importantly, they need a clear idea of how an acquisition can make the company more valuable over time. An investment thesis that defines the specific reasons for and benefits of an acquisition can reduce the risk of entering a deal that brings unsatisfactory returns.
2. Determine a timeline and roadmap upfront
Licensing requirements at both the federal and state government level can have a significant impact on the structure and timing of the deal. If the transaction qualifies as a change of ownership or change of information, regulatory bodies may require a filing as soon as 90 days prior to the deal closing. To avoid any delays or cash flow impacts, dealmakers must plan ahead and determine what is required early on in the planning process.
3. Follow a thorough due diligence process
Compliance should be a big area of focus throughout the deal. The healthcare industry is heavily regulated and thorough due diligence must be conducted to evaluate compliance risks. General counsel, legal teams, and risk managers must carefully consider the target’s industry and regulatory profile. In addition to reviewing all contracts, consideration must be given to the company’s overall compliance culture, practices, and enforcement. Proper due diligence is key to mitigating risk, helping to prevent an issue from arising in the future.
4. Begin integration planning early
Integration of the acquired company isn’t a discrete phase. It’s an ongoing process that should pre-date the signing of any deal. Issues that are relevant to the eventual integration — both regulatory and cultural — should be explored during the due diligence period.
Communication and vision are key during the integration planning process. This emphasis will ensure that focus is maintained on issues that will truly determine whether the integration succeeds or fails.
Acquirers must plan to fully commit the right resources to this effort. HR plays a critical role here and should be treated as a strategic partner by the C-suite.
5. Define the “deal breakers”
All deals have a defined process for each stage of the transaction — from targeting to valuation and due diligence. But the most successful deals, employ a high-level checklist to evaluate each critical phase. This helps identify and find solutions to issues that can affect the deal — before they become a problem. Importantly, it helps acquirers know when it’s time to walk away from a deal.
A checklist of “deal breakers” that separates the golden opportunities from deals that may be troublesome and less valuable typically includes the following items:
- Unaddressed potential litigations
- Unclear rights to IP
- Poor reputation for quality or delivery
- Inability of the target to guarantee a locked vote
- Excessive valuation or liquidation expectations (which can lead to legal liabilities)
- No available value incentive for key employees
- Lack of trust in the target’s candor
- Insistence on the escrow fund as the only remedy for future issues
6. Post-merger compliance
Post-merger compliance is one of the most important yet overlooked stages of a deal. Yes, even after the long cycle of completing a merger, there is still much to do. Yet most companies aren’t aware of the compliance requirements associated with the surviving and non-surviving entities. Unfortunately, a failure to complete these steps poses short- and long-term risks.
Whether at the beginning stages of due diligence and compliance, or the high-pressure stages of closing, CT Corporation understands the complexity of each deal and has assisted thousands of corporate transactions.
For more information on how we can help support your next deal, contact a CT Corporation representative at (855) 316-8948 (toll-free US).