Maximising value in your healthcare business – mergers & acquisitions in healthcare

By Alison Choy Flannigan, Partner and Co-lead Health & Community

What are the current challenges for healthcare businesses?

Healthcare businesses (including medical, dental and allied health) are currently facing a number of challenges, including:

• recruiting and retaining staff (particularly nurses and younger medical practitioners) and workforce issues,
• increased costs (including staffing and medical indemnity and insurance costs), funding shortfalls and having a sustainable business model;
• burnout;
• having to adapt to new technology, including expanded telemedicine and AI which requires investment in infrastructure; and
• ensuring data protection,

in the context of an ageing population and greater demand for services.

Ongoing regulatory compliance has also proven to be an issue, for example in relation to payroll tax (find out more in our recent article, Payroll tax for medical and other healthcare practices: clarity at last, what do you need to do?

The traditional model of sole practitioner general practitioners or specialists is likely to be replaced by more corporatised models. So how do healthcare businesses plan for the transition?

What are healthcare businesses currently doing?

When we are acting for clients who are looking to restructure their business, we quite often advise on the following:

• review of corporate structures to enable younger practitioners to join the business. This includes issuing capital and drafting and negotiating shareholders and unitholders agreements;
• assisting healthcare businesses prepare for sale and the sale process, including due diligence and negotiation of sale contracts; and
• advising on associated tax issues.

Getting one’s ‘ducks in a row’

Sometimes when we are asked to advise on a transaction, the corporate arrangements within the healthcare business require reviewing and a fresh overhaul.

Some of the basic things to consider are the following:

• Are your corporate documents in order?
  • These documents include shareholders and unitholders agreements. Are there any pre-emptive rights or consents which are required for sale? What are the likely hurdles to overcome?
  • What about the value of your business? Who owns the medical records and good will? Are the medical practitioners with the biggest practices willing to stay on for a few years and live with the restraints that the purchaser is expecting?
  • Are there any sleeping timebombs such as unpaid payroll tax?
  • Usually the place of business is important. Is the lease in writing, up to date and reflects the current arrangements? Has rental been paid? Are there any restrictions on assignment or novation? Are any building works required before this takes place? Have the appropriate building approvals been granted to operate a healthcare business in your location?
  • What about major pieces of equipment? Are the lease agreements in place?
  • Have you got your insurance in place for past complaints and claims?
  • Have you got the right regulatory licences in place? For example, with pharmacies who compound, do you have a compounding licence?
  • One of the major issues we find in doing due diligence is that healthcare practices have no idea what securities are registered against their assets which are registered on the Personal Property Security Register (PPSR). It takes some time to clear historical securities.
  • If there are multiple owners, are they aligned about the future? We quite often find this to be an issue. For this reason, we recommend drag along and tag along rights in shareholders and unitholders agreement to prevent one practitioner from vetoing and stopping the sale.
• What transaction structure suits you and what is your exit strategy so that you can maximise the return for your retirement?
  • Are you intending to add younger partners and then exit, or sell shares and/or units or the business? What are the pros and cons of each of these structures?
  • Are you prepared to ‘share’ control? In our experience, this often becomes an issue for older practitioners.

We advise clients to plan forward and ensure that you have a runway of at least 12 months to prepare for the transition.