Mergers & Acquisitions: Perform due diligence

A. In mergers and acquisitions, many deals don't actually close for a variety of reasons. In a sector badly in need of a PR makeover, the three most common reasons that turn a close into a chorus of “no's” are perceived shortfalls in compliance, compliance and compliance.

The key word here is perceived.  With more than fifty shades of grey when it comes to following billing guidelines accurately, one party's standard of compliance may not match another's. If the buyer subscribes to a more exacting—and perhaps arguably unnecessary—approach to compliance than the seller, they will rarely complete the deal without some kind of intervention, even if the seller has a spotless record of getting paid. That intervention typically requires re-documentation of paperwork for every active patient being billed under the questioned protocol.

With the amount of brain-numbing effort required to pull this off, some sellers will raise the white flag right there. In other situations, buyers may cut the purchase price for each file that isn't successfully re-worked, undermining the confidence each party needs to plow through the mountain of paperwork necessary to bring a deal across the finish line. Note that the proceeding applies to perceived infractions. If the buyer identifies compliance failures that tread closer to fraud, rather than run any risk regarding future exposure, they will run from the deal faster than you can say “what happened?”

So how do you avoid this? Have a third party conduct a thorough, mock due diligence. Virtually no one does this, but every seller that goes through the M&A mill, only to see the deal, the fees, and their sanity slip away, wishes they had.

Pat Clifford is managing director, home medical equipment, for The Braff Group. Email him at pclifford@thebraffgroup.com.