INSIGHT: Add-On Transactions and Diligence—The Fast and the Focused

Bloomberg Law

Anjana D. Patel and Joshua J. Freemire, Members of the Firm in the Health Care & Life Sciences practice in the firm's Newark and Baltimore offices respectively, co-authored an article in Bloomberg Law, titled "Add-On Transactions and Diligence—The Fast and the Focused."

Following is an excerpt: 

Investment in a health care provider, especially one intended as a “platform” for future growth, usually involves extensive diligence and compliance review.

Post-closing, recently formed or acquired “platform” companies are typically tasked with one mission above all others—growth—and that growth can be accomplished de novo (i.e., through establishing new locations from the ground up), or by a much faster method, especially for a company with a recent influx of capital, which is by acquisitions.

These transactions, often called “add-ons”, “bolt-ons”, or “tuck-ins”, are generally smaller than “platform” acquisitions. During this aggressive growth phase, it’s important to develop “right-size” compliance and diligence structures to ensure ongoing compliance.

These smaller acquisitions pose some delicate diligence problems. Often, speed is a key factor, as is maintaining lower costs. Traditional detailed document reviews are impractical (or impossible). From a practical standpoint, the risks posed may be low enough to justify an abbreviated process.

So what are some key points for an abbreviated add-on diligence process?