One of the unforeseen challenges we are seeing that affects both buyers and sellers in the health care sector is with respect to entities that have received cash infusions from the Paycheck Protection Program (“PPP”) created pursuant to the CARES Act in response to COVID-19. Mergers and acquisitions can come to a significant slowdown, standstill or be terminated altogether if careful planning is not performed to account for the impact the PPP funds received by a target or seller will have on an anticipated merger or acquisition. While tax and legal considerations have typically followed along with the merger or acquisition and they are important aspects of any merger or acquisition, these considerations have taken a forefront position when it comes to planning for a change of ownership when the target or seller has received PPP funds.
As we learned earlier, health care entities requested and received PPP funds to sustain them during the public health emergency caused by COVID-19, allowing them to avoid a virtual economic shut-down. These funds were a welcome relief to keep health care entities afloat financially, providing a way to cover certain expenses such as a) payroll costs, b) rent, c) interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), and d) utilities. Using the PPP funds on these expenses allows for a recipient of the PPP funds to qualify for loan forgiveness under the PPP. That all seemed like welcome relief at the time.
Chase Howard will present this live lunch n’ learn webinar for attendees interested in learning more about how to effectively prepare for the sale of their dental practice. He will cover issues like who and when to contact when considering a sale, proactive steps to lessen business disruption, when to tell your employees, and other important transition topics.
Preparing your dental practice for sale is quite possibly the biggest decision one can make! Understanding the legal landscape, the investment trends and options as well as what can optimize your business’ sale is essential. This webinar platform provides attendees to ask questions and chat directly with a highly qualified health law attorney.
Florida Healthcare Law Firm Attorney Jacqueline Bain will present this live lunch n’ learn webinar with legal considerations for healthcare business owners preparing for or considering the sale of their business. A healthcare business sale has added regulatory considerations on top of complicated deal points and structure simply by nature of being in the healthcare industry. In addition to the regulatory considerations, there are numerous legal risks and potential pitfalls for those considering this type of transaction.
Attorney Jacqueline Bain is both certified as a specialist in Health Law and Certified in Healthcare Compliance and has deep experience on both the buyer and seller side of healthcare business transactions. She will provide valuable insight for owners considering selling to private equity or other. She has written extensively on the topic of Selling a Medical Practice and will share practical advice in additional to strategy.
Thinking about selling a medical practice? Here are some steps for preparing your business in advance of a transaction.
Visit your financial planner.
Be sure that you can afford to leave the business, if you are retiring. Most times, buyers will require a comprehensive non-compete and you should be absolutely certain that you are financially prepared to retire or sell before you sign that restrictive covenant.
Visit your accountant.
Get your financial history in order. Review and re-review your tax returns and profit statements for the past three years to ensure that the business is appropriately reflected in those records. Take the time to clean up any “creative” bookkeeping so that the buyer is given a complete and accurate picture of the business they are buying into. You are likely going to have to make a representation that your financial disclosures are true, so take the time to get comfortable with that representation early on.
Private money (e.g. private equity) is back chasing those selling medical practices and medical business acquisitions. This time around it is very different from similar activity in the 90s. Back then, the movement was public companies aggregating gross income dollars, which for a time drove stock prices. Today’s private money buyers are looking to maximize profitability through achieving efficiency and aggregating large groups for leverage and the development of new income streams. Though stock (in the form of warrants and options or stock itself) if often on the table, it doesn’t have to be. Buyers are doing all cash deals, albeit to some degree on an earnings basis. If you want the full price, you have to remain involved and do what you can to maintain revenues and perhaps even drive them up.
Physicians especially have to know what they’re dealing with and then have at least a basic understanding of the issues that will drive these deals. To begin with, “private equity” simply means private investors (typically a group that pools their capital) that buy a portion or all of a company. Their investments are usually much larger than venture capital firm deals. They are not publicly traded entities. What do they want? To invest money in mature businesses, grow a company’s profitability and then “flip” their ownership to another buyer, typically in three to five years form their launch date. In contrast, venture capital firms usually invest in start-ups, buy 100% of the company and require control.
The amount of regulation imposed upon those entering into the healthcare business arena can be staggering even for a highly experienced businessman. In the business world, buying and selling businesses is often accompanied by lawyers, documents and consultants. In the healthcare business world, buying into and selling healthcare businesses, or any portion of health care businesses, requires all of that support and much more.
Diving into a healthcare business requires many considerations that are unique to other areas of business. First, appropriate licensing bodies must be notified and/or approve any such purchase or sale. For instance, in the State of Florida:
the Department of Children and Families must be notified every time a new owner becomes a part of a licensed substance abuse treatment center and prior to taking ownership, must either submit to a level 2 background screen or provide proof of compliance with the level 2 background screening requirements.
the Agency for Health Care Administration must be notified sixty days prior to any change in ownership and will run a background check on new owners.
the Agency for Health Care Administration must be notified every time a new owner is added to an entity holding a Health Care Clinic License. Additionally, AHCA must approve any owner of more than 5% of the Health Care Clinic prior to such person becoming an owner.
The development of ambulatory surgery centers is still going strong. Physicians who want to form or invest in them should be wary, though.
Physicians, squeezed by shrinking reimbursement and rising costs, sometimes see ASCs as a sure thing, financially speaking. They aren’t. Developing and operating them is something of an art; and care must be taken in getting into the ASC business. Developing and operating a successful ASC depends on key factors, like ensuring:
The future owners are busy surgeons who will bring cases to the ASC;
The surgeons perform services which are well compensated; and
Profit distributions will be enough to stimulate interest in the center (especially an issue when a physician owned ASC sells too much to a venture or hospital partner).
Health law is the federal, state, and local law, rules, regulations and other jurisprudence among providers, payers and vendors to the healthcare industry and its patient and delivery of health care services; all with an emphasis on operations, regulatory and transactional legal issues.