April 2024: ROC Monthly Masterminds Call
Planning Your Treatment Business: Essential Legal and Tax Factors
Planning Your Treatment Business: Essential Legal and Tax Factors
In the ever-evolving landscape of behavioral healthcare, planning for the future of your facility is as crucial as providing quality care in the present.
Thank you to Tani and Erik from Polsinelli Law Firm for being a part of our April ‘Masterminds’ discussion to dig deep into the intricacies of exit planning, shedding light on critical legal and tax considerations for treatment businesses.
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Topics of Discussion:
Tax structure do's and don'ts to maximize your return
Navigating buyer due diligence and legal milestones as painlessly as possible
What is the state of the M&A market, and what are buyers looking for?
How soon can we close? Common gating issues and best practices in addressing them.
What are the sale process considerations and steps you can take now to enhance your exit value?
Perspective from M&A Buyers
From the buyers' perspective, M&A involves acquiring either a company's equity or assets during the scouting process. This distinction becomes apparent in discussions about deal structures and assets, as highlighted by Hansei's observation regarding the non-transferability of credentialing and contracts in revenue cycle management (RCM).
Polsinelli echoed this sentiment, emphasizing the relative ease of stock/equity sales compared to asset sales, despite potential complications such as approval requirements under payer contracts and licensing.
Asset deals have posed notable challenges for some companies, particularly in the need to restart billing processes entirely. This reiterates the critical importance of engaging competent legal counsel to navigate the nuances and complexities of different transaction scenarios effectively.
The Flavor of the Month: Who Are the Buyers?
The identity of potential buyers fluctuates constantly, influenced by a myriad of factors such as geographical location, demographics, and prevailing payment structures.
Independent Sponsors: Independent sponsor investors face distinctive challenges as they manage funds sourced from various channels. Following the identification of a target company, an independent sponsor endeavors to secure an investor. Typically, these sponsors are seasoned professionals in private equity or investment banking, aiming to procure equity in the targeted company and assume operational control upon acquisition.
Family Offices: Representing pools of family wealth, these investors have diversified interests across healthcare sectors such as senior living. For them, behavioral health represents an enticing avenue for expansion, driven by a holistic approach to healthcare investment.
Rise of Mental Health Facilities: Recent trends indicate a growing allure toward mental health facilities. Factors contributing to this surge include supply and demand dynamics, promising reimbursement opportunities, and historically underserved regions.
Other Key Takeaways:
Partnership Stability: It’s advised to minimize changes in ownership.
Buyer Liability Concerns: Buyers are wary of inheriting liabilities, emphasizing the importance of clean services and protection for sellers. Buyers are also keeping a keen eye on industry headlines.
Equity vs. Asset Purchases: While buyers prefer equity purchases, they seek the tax benefits of asset purchases, often facilitated by F reorgs.
Corporate Practice of Medicine Rules: Consider professional corporation structures to ensure compliance, particularly regarding services provided.
Tax Considerations: Explore tax implications and strategies like F reorgs for tax-free rollovers when structuring transactions.
Valuation Factors: Reimbursement rates and payer contracts significantly impact valuation, with in-network providers commanding higher multiples.
Regulatory Approvals: Address regulatory hurdles such as state licensing transfers in transaction planning to prevent delays, with intermediate holding companies offering potential solutions.
As the industry continues to evolve, equipping oneself with the right legal and tax strategies becomes paramount in securing a successful transition. With the guidance provided, treatment facility owners are better equipped to chart a course toward a prosperous future, ensuring continuity of care and financial stability in equal measure.
Tani Weiner
Health Care M&A | Co-Chair Behavioral Health Group
415.248.2115
Erik Edwards
Shareholder
816.360.4128