M&A Healthcare Insights

Host Andre Ulloa dives into the power of financial preparation in healthcare M&A with guests Aaron Cook and Jeff Michelson from CohnReznick. They discuss the vital role of financial due diligence, the role of a quality of earnings (QofE) analysis, and current healthcare M&A trends.

In the latest episode of the M&A Healthcare Insights Podcast, Andre Ulloa, Founder and Managing Director at M&A Healthcare Advisors, interviews Jack Carver, Partner at Honigman Law, on the importance of having a seasoned attorney to guide you through the complexities of the M&A process, mitigate your risk, and increase your chances of reaching a successful outcome.

In the latest episode of the M&A Healthcare Insights Podcast, Andre Ulloa, Founder and Managing Director at M&A Healthcare Advisors, interviews Mark Romano, Vice President of M&A for Simitree Clinical Consultants. They discuss the vital role clinical experts play in preparing for and executing on a successful M&A plan.

In the conclusion of their three-part podcast series, Andre Ulloa of M&A Healthcare Advisors and Doug Walters of Walters Associates discussed the differentiation of their services in the healthcare transaction market.Ulloa highlighted the unique value M&A Healthcare Advisors brings to the table as a healthcare-focused firm, emphasizing its deep understanding of healthcare entities, including the preparation of Medicare cost reports. This expertise sets them apart from typical CPA firms, as they can navigate complex healthcare financials and regulatory requirements.Walters added that their ability to provide tax expertise and minimize tax consequences for clients is another key differentiator. Many clients only realize the potential tax benefits after the deal has closed, emphasizing the importance of involving experts early in the transaction process.The conversation also delved into the complexities of healthcare transactions, where buyers may deploy significant resources for due diligence, compliance, and analysis. This underscores the importance of assembling the right team, including attorneys, clinical consultants, and financial experts, like Doug and Andre, who can navigate the intricacies of healthcare deals.They discussed the common challenges faced by sellers, including indecisiveness and unpreparedness, which can lead to deals falling through. Doug stressed the importance of setting clear expectations and preparing clients for the journey ahead, helping them navigate the stress and uncertainties associated with selling their healthcare businesses.Overall, this episode provided valuable insights into the specialized services offered by M&A Healthcare Advisors and Walters Associates, highlighting their expertise in healthcare transactions and their commitment to guiding clients through the complexities of the process. The discussion emphasized the significance of early planning, clear communication, and expert guidance in achieving successful healthcare deals.

In part two of their three-part podcast series, Andre Ulloa of M&A Healthcare Advisors and Doug Walters of Walters Associates delved into the critical importance of clean financials in healthcare transactions.They began by drawing parallels between financial statements and job applications, emphasizing the need for professionalism and accuracy in both. They highlighted that professionally prepared financials build trust in a transaction, while errors or inaccuracies can erode trust, potentially jeopardizing the deal.The conversation shifted to the role of financial statements as the keystone of a healthcare transaction. Andre and Doug stressed the significance of accurate P&Ls, balance sheets, and cash flow statements in listing materials like the Confidential Information Memorandum (CIM). They discussed the importance of reconciling cash basis and accrual basis financials and the adjustments made for EBITDA calculations, which serve as the foundation for valuing healthcare businesses.The podcast hosts shared their experiences in working with clients to determine appropriate adjustments, particularly when it comes to owner salaries. They emphasized that understanding whether an owner's role is operational or absentee is crucial in justifying add-backs and ensuring accurate financial representations.As the conversation continued, they touched on some unconventional add-backs they've encountered, including personal expenses that shouldn't have been in the financials in the first place. They stressed the importance of financial integrity and the need to maintain transparency throughout the process.The podcast concluded with a discussion about clients who may be resistant to investing in financial improvements, often due to frugality or a belief in their self-sufficiency. Doug and Andre highlighted the delicate balance of respecting client agency while emphasizing the necessity of well-prepared financials for successful healthcare transactions.

M&A Healthcare Insights Podcast hosts Mark Thomas and Andre Ulloa spoke with Terry Wang, Partner with Regal Healthcare Capital Partners, to forecast the future of the healthcare industry. Significant activity is happening from an investment and acquisitions standpoint.Wang pointed to several significant trends occurring in healthcare today: Making healthcare more affordable, accessible, and convenient is critical. One is finding ways to shift healthcare services outside the hospital. “We spend a lot of time at Regal thinking about, what are the different types of services or delivery mechanisms that can shift care out of the hospital,” Wang said.Moving to a more value-based care system is the second big trend in the healthcare sector. “Healthcare historically has reimbursed our providers on a fee-for-service,” Wang said. “It didn’t matter whether you delivered quality care or not. It didn’t matter if the patient got better. It didn’t even matter if the patient came back to you; in fact, sometimes it was better if they came back to you because you could bill them again. We’re seeing slowly but gradually and persistently; the system is moving more towards value-based care.”These trends appear to counter movements of the past 20 years with hospital consolidations and services moving internally into hospital healthcare networks and subsequent rate increases. “I think it’s gotten to a tipping point now,” Wang said, “where payers, whether it’s Medicare or commercial insurance payers, are fed up paying these high prices. So, a hospital system can still succeed acquiring and merging, but they’re not going to be able to continue raising rates as they have in the past.” Forward-thinking hospitals are proactively moving to risk-based arrangements, such as accountable care organizations. “It’s not going to be just about, let me gobble up the local doctor groups and raise the rates; it’s going to be, how do I thoughtfully manage costs in the given population.”

Andre Ulloa and Doug Walters discuss the importance of having a CPA and an advisor involved in healthcare transactions, specifically in the lower middle market. They highlight how a CPA can ensure the accuracy of financial statements and catch any errors before they are presented to potential buyers. The CPA can also provide insights into operational metrics, such as referral sources, that may affect the valuation of the business. Networking capital is another important aspect of transactions that requires careful analysis and calculation. Additionally, a CPA can help clients understand the tax implications of a sale and navigate any state-specific tax laws. Lastly, they discuss the role of a CPA in responding to quality of earnings analyses conducted by buyers/investors during due diligence. The CPA can provide explanations for adjustments made to EBITDA and ensure accurate information is provided to potential buyers.

While the state of M&A activity varies with uncertainty, why is it different when it comes to healthcare? Discussing the topic on the latest M&A Healthcare Insights podcast, host Mark Thomas sat down to talk with Jorge Gross, Partner at Trivest Partners, and his colleague Andre Ulloa, Partner and Executive Advisor at M&A Healthcare Advisors, to talk about M&A healthcare and its current state. The trio further talked more about … Areas within healthcare that are seeing substantial growth Predictions on what M&A uncertainty could look like in the coming quarters How the current banking crisis is affecting M&A uncertainty and why M&A Healthcare has a reliable component unlike other fields “I will say healthcare overall probably has more activity than the other industries, and the primary reason for that is that … It's a recession-resistant market. At the end of day, it’s a lot easier to underwrite … people are still going to get injured … people are still going to need surgeries, or you're really focused on services … people are still going to go to the hospitals and the hospitals still need to bill and collect the insurance and patient receivables. And so, I would say healthcare overall probably has more activity than the other sectors, but M&A generally, across the board, is down,” said Gross. Jorge Gross is a Partner at Trivest Partners, where he leads control fund investments. He holds a B.A. from Columbia University and an MBA from the Wharton School of the University of Pennsylvania.

Figuring out where to put your money isn't always easy, but for one man, it's his main job. M&A Healthcare experts and hosts Mike Moran, Co-Founder, Executive Advisor, and Co-Founder Mark Thomas, chatted with Haran Narulla, Managing Partner at Tygon Peak Capital, about the current acquisition market and his everyday strategies. Moran reflected on building a relationship with Narulla, “The reality of our business model, right, is that we represent sellers…along the way, for better or worse, you build relationships…and those relationships are with buyers.” As a capital investment firm, Tygon Peak has to be specific in its needs. Narulla said, “We basically focus on three different verticals, one is healthcare, the second is mixed manufacturing, and the third is business services.” When assessing an asset for acquisition, Narulla explained that he looks at three key subjects: industry, risks, and quality. Narulla said, "Our number one target industry today is healthcare." This means that in assessing, he looks toward home health, urgent care, and medical practices. Then they rely on relevant facts for the industry to better understand the risks and opportunities in the current market. After which, he will look at the quality of the asset itself, whether it has a large or small market share and what level of experience the management team carries. As for research, Narulla stated, "There's some sectors where we've done quite a lot of work, and we understand what's going on in those specific segments, and some of the segments we've done less work and so we do a fair amount of work, you know, after." Given the challenges in the labor market, Narulla stated that finding managers to come and run a business has been more difficult than years previously, although there are certainly still options. He said, "I think you have to provide them with a compelling reason to come work for you." Whether this compulsion is in compensation or project ideas is up to negotiation. In any case, Narulla reflected that Tygon’s acquisition strategy has constantly had to adjust to reflect the current market and prepare for future market indexes.