Ask These Questions Before You Pursue An M&A Transaction

M&A remains a key growth strategy in 2022, with more than one in five healthcare CFOs (22%) planning to pursue M&A this year, according to the 2022 BDO Healthcare CFO Outlook Survey.

With high valuations and uncertainty around future market trends, it’s important that healthcare organizations carefully consider if an M&A deal is the right move for them, whether they’re on the buy- or sell-side. When looking at acquisitions made in the last three years, more than a third of healthcare CFOs said they either did not successfully capture available synergies (10%), or synergies fell short of expectations (24%).

Are you trying to determine if it’s the right time for M&A? We’ve provided a list of questions related to strategy, due diligence, integration, and operations for both buy- and sell-side healthcare organizations. You should ensure you can answer all questions relevant to your intentions before deciding to go through with a transaction. While this is not a comprehensive list of all considerations for pursuing M&A, these questions can be used to help you build a strong foundation for any deal you pursue.

For healthcare organizations looking to acquire a company:

Strategy

• Why are you acquiring this company?
• What are you looking to achieve from the transaction? Have you clearly defined what success looks like and how you will measure it?
• Does your strategy for the transaction align with your overall corporate strategy?
• How much risk are you willing to take on?
• Have you been realistic about your ability to do the transaction in terms of access to resources?

Due Diligence

What is the reputation of the company you’d like to acquire?

• Have you completed diligence related to:
• Synergies – Deal value drivers
• People – Compensation strategy, culture
• Technology – IT systems, 3rd-party solutions
• Finances – Quality of Earnings (QoE) analyses
• Operations - SG&A, supply chain
• Regulatory Compliance
• Go to Market Strategy
• Do the results of your due diligence investigations match with the information you were provided?
• Are there any outstanding issues with the company that you need to be aware of?
• If there are outstanding issues, what steps has the company taken to address them?

Integration

• Have you defined the integration goals and priorities? Are they aligned with your transaction rationale and deal value drivers?
• Have you defined the target operating model for the combined company (e.g., degree of integration)? Are you prepared to provide your integration teams with a roadmap to facilitate integration planning?
• Have you defined an integration management structure to support the integration and synergy capture planning and execution process?
• Do you have a good understanding of the concerns that your stakeholders (e.g., employees, customers, partners, etc.) may have about the transaction? Have you developed a communications and retention strategy to address your stakeholder concerns?
• What will it take to integrate the acquisition into your company’s culture? Are the cultures aligned, and are they a good fit?
• How will employee roles and responsibilities change with the deal? Have you taken steps to ensure the right people will be in the right roles?
• Are your technology systems compatible? What support will be needed to integrate the technology systems, and what is the timeline for doing so?
• What cyber and patient data privacy risks will come with the integration process? Do you have a plan to address and mitigate them?

For healthcare organizations looking to sell a company:

Strategy

• Why are you selling your company?
• What are you looking to achieve from the transaction? Have you clearly defined what success looks like and how you will measure it?
• Do you have a clear sense of your company’s value?
• Is the potential buyer the right fit?
• What is the expected impact on shareholders, employees, and patients?
• How will the transaction impact the company’s reputation: positively or negatively?
• When and how will the deal be announced?

Due Diligence

• Is your organization prepared to go through a robust due diligence process that encompasses legal, financial, operational, and compliance concerns?
• Who can management tap to support the due diligence process?
• How resilient are processes and systems throughout your organization? Is any infrastructure single-person-dependent?
• Have you completed a sell-side QOE report?
• Have you had an independent party do diligence on your company? Have you proactively addressed the issues they identified?

Operations

• Has the transaction perimeter or “what’s in and what’s out” been defined? Which executives, key employees, customers, and assets will be part of the transaction?
• What are your criteria for a buyer? Would you prefer a strategic or PE buyer? Do you have any operational imperatives for the buyer (e.g., do you want a soft landing for your employees, how will you maximize customer retention during the transaction, what is the buyer’s corporate culture, etc.)?
• Are there any strategic, revenue-enhancing, and cost reduction initiatives that have been identified or are already in process that could increase the company’s valuation at the exit? What is the status of those initiatives? Should you continue in-process initiatives?
• If you are divesting a business that will need to be carved out, how entangled is the business with the rest of your operations? Have you developed carve-out financials and defined the standalone costs for the business? Have you determined what transition services you are willing to provide the buyer? What will it take to operationally carve out the business by transaction close?
• What will it take to integrate with the buyer’s operations?