Tag: M&A

Summary of article from Foley & Lardner LLP, by Antoinette F. Konski:

Key findings include a reversal of the 2023 decline in Healthtech investments, stable Med Device investments driven by first-financing deals, and a notable 35% increase in Biopharma investments with significant private deals. The Dx/Tools sector saw a decline in first-financing deals but benefited from growth investors for companies nearing commercialization. Overall, the report highlights increased investment activity across all sectors, with heightened IPO interest and significant private M&A deals in Biopharma.

Summary of article from Holland & Knight LLP, by Bill Katz, David Kully, Krithika Rajkumar:

The Judge in FTC v. Community Health Systems Inc. & Novant Health Inc., denied the FTC’s motion to block Novant Health’s $320 million acquisition of two hospitals, marking a rare loss for the FTC in hospital merger challenges. The ruling revitalized the “failing firm” defense, suggesting that the assets in question would cease to be competitive without the merger, despite not meeting the stringent criteria outlined in the Merger Guidelines. The court acknowledged potential harm to competition but emphasized that the acquisition would likely enhance investment and competition in the Charlotte area. The FTC has appealed the decision, with the application of the failing firm defense expected to be a key issue. This case may influence future hospital mergers involving financially distressed entities.

Summary of article from VMG Health, by Grayson Terrell, CPA:

In the complex landscape of healthcare mergers and acquisitions (M&A), informed decision-making and financial due diligence (FDD) are crucial for both buyers and sellers. FDD involves a detailed investigation of a company’s financial information to validate its true operating potential, with the purchase price usually based on a multiple of the company’s EBITDA. Five key aspects of FDD include Quality of Earnings, Quality of Revenue, Pro Forma Considerations, Net Working Capital, and Debt and Debt-Like Items. These elements help normalize earnings, convert revenues, project future business directions, determine necessary operating capital, and understand a company’s debts and liabilities. Overall, FDD is a necessary step for achieving successful, lucrative transactions in the healthcare sector.

Summary of article from VMG Health, by Grayson Terrell, CPA; Joe Scott, CPA; Lukas Recio, CPA; Wayne Prior, CPA; and the Baker Tilly team:

Healthcare M&A transactions require a collaborative approach between financial and tax due diligence experts to identify potential problems and their tax consequences, which can impact the deal structure and negotiation process. Tax considerations, such as whether a sale is taxable or tax-free, greatly influence the structure of a sale. The tax entity type of the target (S corporation, Partnership, or C corporation) is crucial to understand as it affects the arising tax issues. Common healthcare tax due diligence issues include improper independent contractor classification, unclaimed property, improper treatment of owner personal expenses, unreasonable owner compensation, related-party transactions, cash vs. accrual accounting method, pass-through entity tax, 20 percent deduction under Section 199A, built-in gains tax, and non-resident withholding. Each of these issues requires careful consideration and vetting to avoid potential adverse tax implications for the buyer.

Summary of article from ArentFox Schiff, by Michele L. Gipp, Jo-Ann Marchica, Kathryn L. Steffen:

The first quarter of 2024 has seen significant changes in the US health care sector, with new guidelines from the Department of Justice (DOJ) and Federal Trade Commission (FTC) potentially affecting mergers and acquisitions, particularly those involving small health care businesses and physician practices. Federal agencies have also sought public comment on health care transactions, focusing on the impact on various stakeholders and the objectives of these transactions, indicating a continued scrutiny on private equity investment. State authorities are also increasing their oversight of health care transactions, with several states implementing new laws or expanding existing ones. As health care organizations face escalating operating costs, they are considering streamlining services through transactions, but must be cautious of potential legal risks, including antitrust issues. Lastly, the resumption of Medicare and Medicaid audits in full force has increased the need for compliance in health care transactions.

From VMG Health, by Jordan Tussy, Colin McDermott, Madi Whyde:

VMG Health’s analysis of 2024 healthcare sector trends, based on earnings calls from various companies, suggests continued growth in utilization driven by patient backlogs, recovering macroeconomic trends, and an aging population. Key findings include:

• Medical Equipment Suppliers and Distributors: Companies like Intuitive Surgical, Inc., Stryker Corporation, and Cardinal Health, Inc. reported strong demand and growth in 2023, driven by higher system utilization and robust demand for capital products. They expect these trends to continue into 2024.
• Healthcare Operators: Operators like HCA Healthcare and Tenet Healthcare Corporation echoed the growth in utilization, particularly in the fourth quarter of 2023. They expect continued volume strength and investment in their programs, with growth in key specialties like gastrointestinal (GI) and ear, nose, and throat (ENT) services.
• Payors: Payors like Humana Inc. and UnitedHealth Group noted higher-than-expected medical costs due to strong utilization, particularly in outpatient care for seniors, orthopedic, and cardiac procedures. They expect these trends to persist in 2024.
• 2024 Expectations: Companies expect the growth trends of 2023 to persist throughout 2024, driven by elevated backlogs, stabilizing macroeconomic trends, and an aging population. They anticipate continued strong demand, healthy patient activity levels, and robust capital markets.

In conclusion, VMG Health anticipates that 2024 will be a strong utilization year for healthcare service providers, although higher utilization may lead to increased medical claims for payors.