Gary Herschman Quoted in “Solid Finances, Management Attract Private Equity Firms”

Healio July 2019

Gary W. Herschman, Member of the Firm in the Health Care & Life Sciences practice, in the firm’s Newark office, was quoted in Healio, in “Solid Finances, Management Attract Private Equity Firms.”

Following is an excerpt:

The acquisition of health care-related companies by private equity firms increased by 187% and reached $42.6 billion between 2010 and 2017, according to an article in the Journal of the American Medical Association. Private equity investments are more common in dermatology and ophthalmology. These debuted in orthopedics only as recently as 2017, so the impact of private equity investments on orthopedic practices remains to be seen.

Since 2017, three more orthopedic practices completed an investment transaction with a private equity firm and about six to 10 medium to large U.S. orthopedic groups are actively looking at various strategic options, including private equity, according to Gary W. Herschman, JD, of the national health care law firm Epstein Becker & Green PC. …

Acquisition process

Once an orthopedic group decides a private equity acquisition is right for its strategy, Herschman said the group’s financial advisor should include its details, characteristics and financials in a detailed presentation or memorandum about the group that is presented to private equity firms. The investment banker would then help narrow down the number of private equity firms that show interest in a partnership until such time that the orthopedic group identifies the firm that is right for its practice and growth goals.

After determining the private equity firm to partner with, a letter of intent is presented by the orthopedic group. This document includes an exclusivity clause stating that the orthopedic group will not talk to another potential partner within a certain time period, eg, 90 days. Before a definitive agreement is drawn up, the private equity firm performs extensive due diligence and generates a complete financial and business review of the orthopedic group, according to Herschman.

“Sometimes there are things in diligence they find that need to be addressed in the agreement or cause them to propose an adjustment to the purchase price that they had originally offered, but sometimes [they] do not and then they move forward with a definitive agreement,” Herschman said.

Take precautions

Herschman said an orthopedic group should perform its own “reverse” due diligence to ensure the private equity firm it has selected aligns with the group’s financial, cultural and other interests.

“It could be that [the orthopedic group selects] nobody,” Herschman said. “They do not have to. They could go through the process and [if they] do not think any of the financial proposals are good enough or did not connect culturally with any of these groups, no one is forced to do anything until they sign a definitive agreement and go to closing.”