Seller Preparation in the Months Before the Sale

Hospital SignPlanning ahead is something that everyone could stand to improve on, especially when planning on selling their healthcare business.  The Ambulatory M&A Advisor helps navigate potential sellers through the months leading up to the initial trigger pull of the transaction process.

Beth Vessel, partner with Waller, explains that there are several advantages to a seller starting to plan as early as a few months before courting potential buyers.

“I think it is good to think about what regulatory requirements will be involved; there may be pre-closing filings or notifications that could be a couple of months out,” Vessel says.

Vessel goes on to add that it is good to make sure all of the selling party’s agreements with physicians are at fair market value and their anesthesia relationship passes regulatory muster if the business is an ASC.

“You need to think about tax considerations and if there is any debt that you want to get paid off in order to get liens off the assets if it is an asset deal,” she says.

David D.”Beau” Haynes Jr., partner of the law firm DeBruhl Haynes– The Health Law Group says he believes the most important thing is that planning months ahead gives  both parties plenty of time to conduct their due diligence.

“It gives you the appropriate time to address any issues that may pop up.  What we experience in the healthcare industry that is seen as a challenge is where you get a buyer or a seller  that comes to you 30-45 days out and wants to try and finish a transaction in that time period.  I think the most important thing is giving yourself the time to appropriately plan, appropriately conduct due diligence, and making sure that built into that time frame are contingencies for the unknown,” Haynes says.

As for what Haynes refers to as the unknown, he says certain things sellers need to be aware of are any litigation, investigations, licensure or accreditation issues that are disclosed or discovered in the course of due diligence.  This then brings the question of exposure to the buyer after closing and how to address that.

“Do you proceed once you have all of the information with whatever the liability might be, such that you feel that the risk is minimal to not sour the deal?Then if you think there is a reasonable amount of exposure, how that is addressed is also important.  Do you walk away? Do you restructure the deal such that you are not taking on liability for the Seller’s provider number?  Do you put some of the sale proceeds in escrow for a certain amount of time post-closing, such that if the liability does become a reality, it will hopefully address that for the recent purchaser to make them whole?” Haynes says.

Andrew Blustein, partner at Garfunkel Wild P.C. says one of the main advantages is the seller can clean up their house.

“Starting early can provide time for the Seller to clean up their house before the transaction begins.  For example, the Seller can extend key contracts which have expired (but the parties are still operating under), identify who makes up the Seller (maybe a shareholder left but Seller never got share certificate) and things like that,” Blustein says.

“Even more important for healthcare transactions”, Blustein adds, “The seller can look at any compliance issues and address them now because it is better that you reduce any compliance concerns before the Buyer discovers them.  When the buyer comes in and does due diligence, the Buyer is trying to gain a sense of trust.  The buyer’s lawyers will call up and say, “We didn’t really find anything,” or “We found some things that are making us think there are other issues out there.”

Blustein says due diligence isn’t perfect; but if information is organized and presented in a credible, quality manner, it makes an important perception that can allow a transaction to go more smoothly.

The Starting Process and Consultation

“I think the buyer or seller should start with an attorney, a CPA, and/or some type of business consultant.  Having a meeting early on, when you think you have an interested purchaser is appropriate.  A couple of things that need to go along with that include, when you get into some substantive  discussions, I think you need to always have a confidentiality and non-disclosure agreement, even if you are just having a cup of coffee with a potential buyer.  That just protects all involved,” Haynes says.

The other thing that Haynes says works well is having a non-binding letter of intent early on with a potential purchaser.  He says  it helps define the goals of both parties.

“Even though you haven’t designed the transaction in detail, it helps each side, including the seller, identify the main goals of the particular transaction.  It helps both sides of the transaction identify pretty quickly what they want and if it is not going to work, it becomes a protection mechanism where you don’t get down to the one yard line and then both parties realize that they can’t make the deal work,” Haynes says.

Blustein says another way to have a head start in the process is to get a grip on the business’ financials.

“I think it is good to have a fresh eye look at how you plan on presenting yourself.  This may be your outside financial consultant, maybe it is even an IT person that knows your financial system.  You don’t want to make the buyer struggle to get transparency.  If everything is laid out, all of those different components of the financials will reflect how on top of the world you are,” Blustein says.

Haynes says the next area to be aware of is how to prepare for deciding to stay on within the company.

“When a seller wishes to stay on post-closing, I would suggest that their employee agreements have very strong non-competition clauses, non-solicitation clauses.  At the same time, if you have a seller that is going to be an employee post-closing, I suggest that the purchase document also contain the same type of provisions such that you have two layers of protection,” Haynes says.

Blustein discusses some of the things that sellers need to avoid when preparing to sell.  Blustein says it is best to avoid, unless they have to, for a business to make sudden changes, like gaining a new president a week before going on the market.

“You want to show improvements without drastic changes; however, sometimes when you are preparing to sell your house, you find out that you have a massive leak that you didn’t know about, and you have to fix it.  You might have to fix it and delay going to sell, but that is why a transaction is very fact specific,” Blustein says.

“When I do due diligence and I am seeing massive changes in the months leading up, I start to get a little paranoid.  If it is a year later, I start to think, “Hey, they have cleaned their house, they worked it out; things are smooth and I feel more comfortable.””

If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or


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