Acquisitions and joint ventures are very time consuming endeavors. It is a process of constant distillation. You have to evaluate potential targets at many levels. Some may be eliminated at the preliminary analysis stage; others will survive multi-levels of scrutiny. Only a few, perhaps only one, will pass the test of acceptability.
- Understand your strategic and operational objectives:
- Are you focused on a market expansion for an existing product line?
- Are you looking for a vehicle to develop new products in existing and new markets?
- Are you looking for a "bridgehead" to other desirable industry segments?
- Are you targeting immediate profitability or can you tolerate profitability over time?
- Type of Transaction - Acquisition (stock vs. asset), joint venture or business alliance
- Ownership Structure of Target
- Business Focus
- Corporate Image and Industry Position (compared to market leaders)
- Markets (market share and trends)
- Product Lines (product quality compared to best of breed competition)
- Industry Condition and Competition (local and int'l)
- History of Target's Business - How did it become what it is today?
- Management Talent (quality and depth)
- Business Partners, Advisers and Contacts
- Business Reputation of the Target and its Current Management and Owners
- Local Business Practices and Market Considerations
- Consumer preferences - demographic trends
- Business practices (both consumer and competition)
- Economic, fiscal and political stability
- History of nationalization or expropriation?
- Government regulation - sophisticated vs. developing; market vs. price regulation; open vs. controlled markets; are domestic companies favored over foreign companies?
- Financial stability (currency, accounting practices, tax laws, and ease of profit and capital repatriation)
- Labor markets and availability, skill demographics, cost structures, unions, wage scales, benefits, labor laws and entitlements
- Management styles and practices - entrepreneurial, authoritative, collaborative
Letters of Intent
1. Pros & Cons
2. Key Provisions
- Identification of Key Parties to Proposed Transaction
- General Description of Structure of Proposed Transaction (Stock vs. Asset Acquisition; Joint Venture, Marketing Arrangement, etc.)
- Key Assets to be Acquired/Liabilities to be Assumed
- Excluded Assets/Liabilities to be Retained by Seller
- Key Personnel/Management Issues (Board Composition; Employment Agreements, etc.)
- Non-Compete Agreement/Non-Solicitation
- No Raid Provisions (Key Personnel)
- Confidentiality Provisions
- Good Faith Negotiation Obligation
- General Conditions
- Mutual Agreement of Structure
- No Material Adverse Change
- Successful Completion of Due Diligence
- Transition Management Plan
- Negotiation & Documentation of Definitive Agreements
- Required Approvals & Consents
- Interim Operating Agreements
- Expenses
- No-Shop/Exclusivity
3. Binding vs. Non-Binding
Due Diligence
The following is a list of categories of information required from the target company and each of its affiliates (collectively the "Target"). Sections 1-14 address the Target's general organization and operation. Sections 15-19 focus on health care matters.
1. Organization Documents, Management & Other Information
2. Real Estate, Personal Property & Equipment
3. Financial Matters
4. Insurance/Risk Management
5. Tax Matters
6. Third Party Contracts
7. Customer Relationships
8. Provider Relationships
9. Other Supplier Relationships
10. Personnel Matters
11. Market Information
12. Litigation/Claims
13. Intellectual Property Rights
14. Systems/Operations
15. Other Matters
16. Medical Staff and Health Professional Relations
17. Facility Information
18. Accreditation and Health Planning
19. Health Care Regulatory Matters
Transaction Documentation
1. STOCK PURCHASE AND CLOSING (Description of Transaction - Stock, Asset, JV)
- Purchase & Sale of Shares
- Purchase Price and Terms of Payment
- Transfer of Additional Assets, Rights, etc.
- Closing Balance Sheet/Purchase Price Adjustments
- Escrow Agreement
- Closing
- Abandonment Date
2. ADDITIONAL AGREEMENTS
- Allocation of Responsibility for Pre-Closing Claims and Receivables Subsequent to Closing
- Non-Compete/Non-Solicitation
- Transition Services
- Assumption/Terminations of Employees and Employee Benefit Plans
3. REPRESENTATIONS AND WARRANTIES OF SELLER (AND COMPANY)
- Organization, Qualification & Corporate Power
- Subsidiaries
- Authorized Capital
- No Breach
- Title to Real, Personal Property, Intellectual Property and Leasehold Interests
- Compliance with Law/Fraud and Abuse
- Financial Statements and Reserves
- Events Subsequent to Audited Financial Statements
- Taxes
- Employees and Employee Benefit Plans
- Litigation and Investigations
- Contracts (Members, Providers, etc.) and Other Commitments
- Other Approvals
- Disclosure
4. REPRESENTATIONS AND WARRANTIES OF BUYER
- Organization, Standing and Corporate Power
- No Breach
- Validity
- No Financing Contingency
- Litigation and Investigations
5. CONDITIONS TO OBLIGATIONS OF BUYER
- Opinion of Counsel for Seller
- Representations and Warranties of Seller and Company to be True and Correct
- Performance
- All Proceedings to be Satisfactory
- Absence of Adverse Change
- Approvals (National & State Regulatory Approvals & Third Party Consents)
- Minimum Enrollment (other required financial measures)
- Agreements
- Elimination of Inter-Company Accounts
- Supporting Closing Documents
6. CONDITIONS TO OBLIGATIONS OF SELLER
- Opinion of Counsel for Buyer (Often not required)
- Representations and Warranties of Buyer to be True and Correct
- Performance
- All Proceedings to be Satisfactory
- Approvals (National & State Regulatory Approvals & Third Party Consents
- Agreements
- Supporting Closing Documents
7. INTERIM COVENANTS OF SELLER AND THE COMPANY BETWEEN THE DATE OF THIS AGREEMENT AND THE CLOSING DATE
- Maintenance of Properties and Business (Can be very detailed with many covenants)
- Access to Information (Pre-Closing)
- Notice of Breach
8. JOINT COVENANTS OF THE PARTIES
- Confidentiality of Business Information
- Confidentiality of this Agreement
- Public Announcements
- Access to Information (Post-Closing)
9. INDEMNIFICATIONS
- Seller's Indemnification
- Buyer's Indemnification
- Terms and Conditions for Indemnification
- Obligation for Pre-Closing Liabilities; Contribution
- Time Period for Indemnification
10. TERMINATION
- Termination and Provisions
11. MISCELLANEOUS
- Entire Agreement; Amendments
- Waiver
- Notices
- Counterparts
- Severability
- Governing Law
- Submission to Jurisdiction
- Assignment
- Expenses/Brokerage Fees
- Survival of Agreements
- Dispute Resolution and Arbitration
