Healthcare M&A Deals: How to Successfully Close a Deal

Healthcare M&A transactions constitute 5.5% of total global M&A activities. Healthcare deals boomed during and after covid-19 era, as 2021 saw a 56.6% increase in transaction value as compared to 2020.

However, it doesn’t mean that every M&A attempt turns into a successful transaction.

Where do things differ in successful and unsuccessful transactions? What are important things to be considered during healthcare M&A deals? How can technology like virtual data rooms make these transactions more efficient? Here are all the answers.

Key Factors for Successful Healthcare M&A Deals

Healthcare M&A Deals

1. Make a Strong Acquisition Strategy

Being clear about what you intend to gain from a merger or acquisition is among the most important initial steps. For example, if you intend to acquire another company, decide what your primary purpose is. Is it for:

  • Growth?
  • Competition elimination?
  • Stepping foot into new markets?
  • Reducing costs by obtaining synergies?

2. Create a List of Potential Targets

A clarification in your M&A objectives will assist you in preparing a more targeted list of companies you should be looking for. The origination and sourcing process will not be easier as businesses or entrepreneurs are rarely interested in an immediate sale.

If you don’t have any specific names in your mind, you can save time in sourcing by exploring LinkedIn and industry association lists.

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3. Evaluate Potential Targets and Refine Your Criteria

Once you prepare a list of potential targets, refine it by establishing criteria for every name in it. You can categorize targets according to deal types and sizes, such as A deals, B deals, or C deals.

The A deal will be the strongest in terms of size and strategic viewpoint. The core idea of the categorization is to make sure that you (the buyer side) don’t overpay for a transaction.

At this stage, buyers may consider using data management software or dataroom software to archive their databases safely and in an organized manner.

4. Start Contacting Your Targets

After the completion of categorizing targets, the corporate development teams can start contacting them one by one or simultaneously.

Here, an electronic data room can be very helpful in keeping communication safe and private. You can start contacting heads of corporate development, heads of strategy, board members, or CEOs. Those who show interest, bring them to your data room for initial data sharing and further communication.

It is important to be subtle rather than direct in your approach. Be creative in letting them know that you intend to buy them.

5. Evaluate the Targets Based on their Internal Data

When the sell side is interested in connecting with the buy side, it is time to get as much information as possible. The information may include revenue numbers, financial statements, and other key performance indicators.

Buy-side can also request access to corporate records of the sell-side. Again, a virtual data room at this stage can help both sides in safely sharing information. Buyers can evaluate data online, while sellers can protect their information.

At this stage, data analysis will help buyers assess whether this transaction is beneficial according to the objectives or not. The buy side can create multiple data room services for different targets.

6. Send Purchase Offer and Negotiate

A thorough analysis of the target company’s data will help you create a better offer. Of course, the sellers will be frank in their demands, but these are usually opening gambits.

Paying attention to writing a well-structured LOI or letter of intent (non-binding document) is essential. While writing the LOI, keep in mind that this is what you will be negotiating in the future. Slight changes are expected but make sure that your proposal doesn’t have to go through bigger changes in the future.

7. Conduct Due Diligence

After the offer is accepted, the “long war” or due diligence begins. The initial data evaluation helps the buy-side assess the scope of the deal. The due diligence process involves a thorough analysis of every type of data from the sell side.

The buy side will conduct financial due diligence, HR due diligence, regulatory due diligence, commercial due diligence, and IT due diligence.

The due diligence process is a long game that involves tons of data sharing and regular communication. The best way to increase the efficiency of the due diligence process (and boost the chances of closing the deal successfully) is to ensure real-time data sharing and communication. A due diligence VDR or data room for M&A will be very handy here.

Healthcare M&A Deals: How to Successfully Close a Deal

8. Finalize the Purchase

Due diligence will unfold some truths which may lead to changes in LOI. Buy-side can also convince the sell-side for a grace period where the target company will have to achieve a specific sale/profit figure or give further discount in the transaction.

As mentioned earlier, the LOI is an important document, and making bigger changes to it after due diligence counts as bad faith.

Once everything settles, there comes deal closure (purchase contact). Buyers usually have to deposit a non-refundable amount at this stage to show good faith. If there are no further issues to resolve, the deal will come to an official close once both parties sign SPA.

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Final words

Healthcare M&A deals, just like other mergers and acquisitions, require due homework. One of the most important things in M&As is to keep the ultimate goal in mind. It will help you strike a deal that seems good on paper as well as in practice. A typical M&A transaction usually goes through the above-mentioned phases.