Growing Your Health Business By Acquisitions: Top Tips

Significant regulatory and funding changes across several Australian health sectors will naturally lead to some organisations exiting the market and others taking the opportunity to grow. It is no surprise then, that M&A interest is on the rise.

Buying the right business offers incredible growth. But buying the wrong business can be a catastrophe. So how do you secure a great opportunity and avoid the “lemons”?  Here are our top tips.

Know what to expect: Acquiring a business is a complex process. Typically that process will involve some initial discussions with the seller to reach agreement in principle, undertaking due diligence (where you request information and records from the seller and investigate the business), deciding whether you want to go ahead, negotiating and signing a sale contract,  and following the terms of that contract which will require all parties to do certain things before, during and after sale to give effect to the transaction. Your lawyer can tell you exactly what’s required and act for you throughout the entire process to help you get the most favourable deal.

But expect the unexpected and know your walkaway point: It’s not unusual for the seller or an authority to take an unexpected position or for an unexpected event to occur, despite careful planning and negotiation. Say the seller suddenly presses for something new, the ATO takes an adverse tax position, or you are a residential aged care provider and the Department of Health does not approve a transfer of places in time. When the unexpected happens, make sure you understand what the practical impacts are and what options are available to you. Sometimes the best (or only) option is to walk away. But in many cases the unexpected does not have to derail the deal and your lawyer should explain your options and help you get the best outcome.

Get the right advice from the right team: No one is an island, and smart buyers get the right team of professionals in their corner before doing a deal. That team typically includes at least a valuer, accountant and lawyer. It may also include brokers, financial advisors and consultants, depending on the deal. When buying a highly-regulated business such as an aged care, NDIS or other health business, it’s especially important to engage industry specialists. Health businesses face unique challenges, such as regulatory and funding requirements and industry experts can often prevent issues that a non-specialist might overlook.

Find any skeletons before you do the deal: Due diligence is a critical step to make sure (as far as possible) that you really know what you’re buying. Skimping on due diligence to save time or money (or even out of enthusiasm) can cause big problems later. Your team of advisors can help you at all stages of the process and give recommendations based on what’s uncovered. If you still decide to go ahead, you’ll be making the deal with open eyes and will know what extra terms might need to be negotiated to address what you’ve discovered. Those extra terms might include, say, a better purchase price or contract terms that reduce your risk.

Negotiate the right terms: The seller’s lawyers usually prepare the first draft sale contract, which (naturally) tends to favour the seller. Smart negotiations lead to better deals. Your lawyer should help you understand the proposed terms, recommend negotiation options and advocate for you so you get the best possible deal. Your lawyer should also help you understand broader risks that cannot be addressed by the terms and help you find other ways of managing these risks.

Don’t derail: Make sure that you understand what you’ve agreed to do and do it. You should also, as far as legally possible, make sure that the seller does what they agreed to do by holding them accountable. It’s easy to say this but can sometimes be hard to achieve. It’s important to tell your lawyer as early as possible if there’s any chance you won’t be able to meet a contractual obligation. And if the seller  doesn’t hold up their end of the deal, your lawyer will help you take appropriate action in response.

Ready to Explore an Acquisition?

We love helping great organisations grow and have the expertise to help take yours to its next stage of growth using smart acquisitions and corporate restructuring strategies. Our team includes experienced M&A specialists who regularly act in acquisitions of aged care, NDIS, allied health and similar businesses – big and small, for profit and not for profit. To find out more about how we can help you, contact us today at info@kinnylegal.com or 02 9199 4563.

 This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you.  Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.

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