Navigating M&A Deals in Healthcare: Tips for Success

At a glance

• The main takeaway: When buying a healthcare practice, there are a few key stages and considerations to be aware of to conduct a successful transaction.
• Impact on your business: Understanding each stage and key consideration will enable one to derive the most significant value.
• Next steps: Aprio guides clients through M&A execution, helping businesses achieve optimal outcomes. Reach out to ray.brady@aprio.com or kenny.janis@aprio.com to schedule a free consultation today!

The full story

Healthcare practice owners often face many challenges in the healthcare industry that complicate a successful transaction. These challenges include navigating regulatory requirements, integrating complex systems, financial reporting consistency, and cultural integrity. Understanding the M&A process is critical in order to maximize returns for all parties involved.  During the process, there are three key stages:

• Stage 1: Evaluate company operations
• Stage 2: Engage with M&A diligence professionals
• Stage 3: Integrate the business into current operations

Evaluate company operations

Stage 1 entails considering the business operations and what would be a good fit for the company in terms of future state. From the buy-side perspective, this would mean evaluating things such as geographic location, procedure mix, customer demographics (private practice vs. Medicare/medicaid), and insurance relationships.

As a seller, one would want to evaluate whether a sale to a strategic partner or joining a private equity platform makes the most sense. Additionally, you will want to have a strong understanding of the business’s financial health. Many middle-market healthcare practices operate on a cash basis, which can complicate the sale process. Transitioning to accrual accounting and assuring your financial statements reflect GAAP standards is essential to boost value. This transition often involves evaluating the revenue and collections process. Accurate and consistent financial reporting enhances buyer confidence and can increase your business valuation.

The key questions to ask during this stage are:

• What drives this business?
• What is the business’s value proposition?
• What synergies can be realized?

Engage with diligence professionals

As a seller, working with a wealth manager, attorney, and investment banker early in the process can be highly beneficial. These professionals can help you plan for the proceeds of the sale, structure the deal to meet your priorities, and provide strategic advice to increase your business’ value. Investment bankers can present various transaction outcomes and help you choose the best path, whether selling to private equity, a strategic buyer, or passing the business to existing employees or management. 

From the buy-side perspective, engaging diligence professionals, such as financial due diligence, tax due diligence, and legal due diligence teams is essential to help evaluate the purchase. Hiring an M&A attorney early in the process is highly recommended because they will assist in providing pertinent legal advice, along with drafting of critical pre-diligence documentation including Indications of Interest (“IOI”), Letters of Intent (“LOI”), and purchase agreements.

In addition to financial, tax, and legal diligence, it is important to understand the critical areas where incremental due diligence is required, including, but not limited to, insurance, informational technology (“IT”), and regulatory compliance due diligence.

Integrate into current operations

Integrating a healthcare practice post-acquisition can be complex, so it is important to consider the following aspects:

• Prioritize patient care and clinical continuity: Ensure a seamless transition by aligning care protocols, treatment guidelines, and patient-specific techniques.
• Harmonize technology systems: Integrating Electronic Health Records (EHR) is essential for consistency in patient care, billing, and clinical workflows while assuring secure data transfer in compliance with regulatory standards.
• Focus on cultural integration: Culture plays a key role in successful post-acquisition integration. Management teams must understand cultures of both the acquiring and acquired organizations and create a plan to blend them effectively.
• Align financial and billing practices: Unify billing processes and systems across the organization to prevent confusion or errors in financial reporting and the patient experience. Reviewing and renegotiating contracts with insurers, government payers, and other stakeholders to align rates, reimbursements, and policies is essential to patient satisfaction.
• Monitor compliance and legal issues: The healthcare industry is highly regulated, both publicly and privately, so it’s important to understand and monitor compliance with regulatory agencies. Making sure all facilities maintain licenses, certifications, and accreditations post-acquisition is critical.
• Communicate with patients: Keep patients informed about changes in their healthcare providers, new access points, and any modifications in how services are delivered. Maintaining trust should always be the top priority.

Conclusion

Buying and selling healthcare practices can offer significant opportunities for growth, innovation, and operational efficiency; however, they come with particular challenges. Success in these transactions depends on thorough due diligence, clear strategic goals, and effective post-merger integration. With the right approach, healthcare M&A can lead to enhanced patient care, expanded services, and a stronger competitive position in the market.

Related Resources/Assets/Aprio.com articles/pages

• Aprio Healthcare Industry Service Page