Becker's Hospital Review

Transactions & Valuation Issues "Due diligence needs to be conducted in a deliberate manner so that vast amounts of information and numerous issues can be identified at both a technical and managerial level, at the appropriate time, so appropriate decisions can be made," says Mr. Van Demark. According to Craig Garner, JD, former CEO of Coast Plaza Hospital in Norwalk, Calif., cooperation from both sides helped to streamline due diligence when he was negotiating the sale of Coast Plaza to Avanti Hospitals in El Segundo, Calif. Mr. Garner's willingness to respond to all of the requests for information about Coast Plaza — during multiple phases of diligence — helped the deal conclude successfully. "I wanted to make sure that we made all disclosures. I wanted to do this only once, and do it right," says Mr. Garner. Without full effort and participation from both parties, an issue may fall through the cracks, or certain information will not come to light at the appropriate time. 7. Don't lose sight of the purpose of due diligence. Due diligence itself can take a very long time and it is common for organizations to forget why they are doing due diligence, says Mr. Van Demark. Most organizations never lost sight of the business perspective of the process — how it provides a financial perspective to operations — but they forget that due diligence should inform modifications to the transaction agreement. "When organizations forget to review or modify the rights and obligations of the parties in respect to each other, depending on what is revealed in due diligence, than the process was not fully useful. Hospital executives need to remember not to get caught up in closing the deal," says Mr. Van Demark. 8. Enlist advisors and legal counsel for assistance through the process. As mentioned before, due diligence covers many complex areas within a hospital's operations — financial, legal, compliance and so on. Due to the complexity of healthcare organizations as well as the complexity of topics, Mr. Baker advises that hospitals involve financial and legal advisors who have experience performing due diligence in a healthcare setting. "Individuals with experience know what to look for, what areas to prioritize, the questions to ask and what risks to address," says Mr. Baker. 41 While advisors and legal counsel are not necessary in order to conduct due diligence, the experience they often bring is a good indicator of success for the deal. According to Brian Kerby, CPA, director of transaction services group for Crowe Horwath, some hospitals or health systems have experience in transactions so they may be more familiar with due diligence — they may have more experienced executives and/or in-house legal counsel. "The hospital board or executives need to ask themselves: Are we experienced in [due diligence]? Have we done this historically? The answers to these questions are good indicators of whether or not advisors are necessary and to what extent," says Mr. Kerby. 9. Prepare to navigate politics. Due diligence can stir up some sensitive or controversial issues, adding the dynamic of politics to the already complicated process. According to Mr. Baker, it is possible for politics in discussion to cloud what should be appropriate, standard due diligence procedures. Typically the politics arise around the closing of the transaction when the parties begin to visualize the changes and operations post-closing. "Typically [politics become a factor] during the lengthy discussions and negotiation around what a merged board or executive team looks like immediately post close as well as how it may evolve over some predetermined period of time," says Mr. Baker. Unfortunately, politics can distract and/or delay the due diligence. This is why professionals suggest covering governance and post-closing structures early on. "[It is] an instance where experienced advisors play a key role. They may be better at probing for information amid sensitivity and tension," says Mr. Baker. When participating in a healthcare transaction — a merger, acquisition, full sale or affiliation — there is no way to avoid due diligence. The above strategies will help hospital executives and board members conduct robust due diligence to satisfy their needs, state and regulatory officials and any other parties with a stake or interest in the deal or its outcomes. Overall, robust due diligence is pivotal because the more one partner knows about another and vice versa, the better — in a transaction or a marriage. n REGISTER TODAY! Becker's Hospital Review Annual Meeting CEO Strategy, ACOs, Physician-Hospital Integration, Improving Profits and Key Specialties 83 Health System Executives as Speakers Co-Chaired by Chuck Lauer and Scott Becker May 9-11, 2013; Chicago Westin Michigan Avenue, Chicago For more information and to register, visit: www.beckershospitalreview.com/4th-annual-beckers-hospital-review-meeting.html

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