Professional Health Services Sector M&A Deals: 5 Legal Positioning Tips
Published:
March 26, 2021
Author(s):
Merger and acquisition deals are still happening across all sectors, perhaps at an even higher rate than pre-COVID-19 pandemic, even if the financial terms of those COVID-era M&A deals might look a bit different. For years, large professional services corporations have sought inorganic growth strategies that has increased M&A activity in the professional services sector. But low organic growth due to the COVID-19 pandemic has accelerated this trend. Professional services industries, particularly medical and associated health professions, like dentistry, pharmacy, veterinary, and physiotherapy, chiropractic, and massage therapy, have all proven to be largely recession proof, weathering the COVID-19 pandemic better than many other sectors. And that makes them an attractive M&A target despite – and maybe even because of – the COVID-19 pandemic.
There are certain steps any business can take to position themselves as an attractive M&A target. But those in the regulated professional health services sector have unique considerations to take into account when contemplating an M&A deal. These five legal tips will help professional health services businesses position themselves as an attractive target before a live opportunity comes up, so you can move quickly when it does.
1. Regulatory Compliance
Professional regulatory requirements vary by profession, but all are typically very prescriptive. This means that you might not have a lot of flexibility in how you can structure an acquisition deal or the corporate structure that will survive the acquisition. Familiarize yourself with the applicable regulatory restrictions beforehand so when an offer comes in, you’ll be better prepared to evaluate it. For example, some Nova Scotia professional regulators allow only Nova Scotia corporations to hold professional corporation permits, and require professional corporations to be wholly owned or controlled by individuals licensed in the related service field. When parties are considering a transaction that combines two or more health specialties under one roof or involves an out-of-province acquirer, such regulatory requirements make it necessary to implement creative corporate structures and contractual arrangements to comply, and still get the deal done.
2. Owner Alignment
Professional services businesses are often comprised of multiple partners or multiple shareholders – and depending on your contractual arrangement and corporate governance structure, that could delay or even derail an M&A opportunity. You might assume you’re all on the same page when an acquirer knocks on the door, but you might be wrong. So discuss strategy and plans with all the owners ahead of time so everyone’s aligned about the game plan. And review your contractual arrangements, such as shareholders’ agreements and associate agreements, and your governance structure as a whole, now to determine whether they’ll pose any obstacle to a sale – and whether you can do anything to remove such obstacles to pave the way for a sale down the road. For example, it might be helpful to have buy-sell rights between you and your partners to force a sale between you before an external M&A deal, or to drag-along into the ultimate transaction a partner who otherwise may be unwilling to sell.
3. House Keeping
Every business looking to position itself for acquisition should get its house in order before the games begin. This applies equally to professional health services businesses. Sophisticated acquirers undertake detailed due diligence on a target company and its business. Get your minute book, contracts, and other key business records complete and up to date. And don’t forget your employees: there are steps you can take now vis-a-vis your employees to make your business more attractive to sell later.
4. Digital Records
With COVID-related travel restrictions continuing into 2021, expect more of that due diligence to take place electronically and remotely. And considering the potential cost-savings of “remote” due diligence, this trend could continue post-COVID. Ensuring all your records are already maintained in electronic form will make this process less stressful and time consuming if a potential deal comes up.
5. Foreign Investment
The Canadian government is increasingly scrutinizing foreign investments generally, and in the public health sector particularly. This could make getting an M&A deal with a non-Canadian acquirer approved by the federal government more difficult, depending on the particular health field or the acquirer’s nationality. Be prepared for the possibility the deal could take additional time, or not even conclude, as a result, and consider doing some advance homework to identify which countries are typically problematic, and which aren’t.
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Please contact your McInnes Cooper lawyer or any member of our Mergers & Acquisitions Team @ McInnes Cooper to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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