Due diligence is one of the most important steps in any business transaction, both from a buyer’s and a seller’s perspective. This process typically includes a full and detailed review of the business financial records and filings, as well as an understanding of the longer-term strategic direction of the company.
When it comes to healthcare businesses, in particular, there are a few components of the due diligence phase that should never be overlooked. Here is our guide:
Any healthcare business is subject to strict compliance rules –everything from the frequency with which equipment is calibrated and inspected, to how drugs are stored and packaged needs to be exactly within the rules, maintained, and recorded. As part of your due diligence as a buyer, you will want to make sure that this has been under control for at least the last few years –it could be costly for you to now get things up to compliance, and you could be opening yourself up to litigation if a past problem is now identified.
Suppliers and customers
When it comes to suppliers and customers, you need to review the details of any contracts that exist. If a preferential rate was negotiated with the current owner and is due to expire in the near term, then this could affect your valuation of the company. Likewise, if there are customers that are loyal to the company because of the current owner, then you may see an above-average drop-off in sales when you take over –factor this into your evaluation and you will be able to avoid potentially nasty surprises down the line.
There are two key things you need to look at when you review the employees of the company and their roles and responsibilities. Firstly –is the current owner handling a disproportionate amount of work? If so, there could be issues with day-to-day operations when that person steps down.
Secondly, you need to look at any essential staff. Is your acquisition based on a technology platform that needs one or two key people to operate, maintain, and update? If so, you are opening yourself up to being held to ransom for excessive pay rises and/or bonuses by those people when you take over.