In this hot seller’s market a seller must be prepared for an increasingly rigorous due diligence process by prospective buyers. Healthcare legislation uncertainty coupled with increased competition for quality assets has led to heightened diligence by buyers whose aim is to evaluate, mitigate and price the perceived risk attendant to health care transactions.
The following will help Sellers be prepared:
- Be prepared to provide 3 years financial statements and year to date financial statement. Your senior housing broker should request a list of all benefits of ownership that might be added back to the facility’s earnings before interest, taxes, depreciation and amortization (EBITDA). Banks will also look for an industry average 5% management fee for underwriting.
- Tax Returns. Be prepared to provide 3 years tax returns and current years extension if filed.
- Be prepared to provide 3 years census by payor.
- Payor information. Identify and produce all provider agreements, demonstrate compliance with billing and reimbursement and payment regulations, or show what remedial steps will be taken to resolve any issues prior to closing.
- Regulatory compliance. Be prepared to provide the facility’s last two years State and Federal surveys along with all plans of correction (POC).
- Be prepared to provide the last 2 payroll runs.
- Be prepared to provide copies of all collective bargaining agreements.
- Real Property. Be prepared to provide evidence of ownership and a survey. Disclose any environmental issues if they exist.
- Licenses & Waivers. Provide all information relating to licenses and certifications relevant to the operation, including healthcare licenses, certificates of need, and local business licenses.
- Confirm that all ongoing litigation is covered by insurance and that anticipated liability is within policy limits.
- Compile a detailed schedule of fixed assets and inventory. Identify whether any assets are leased or subject to liens and if so provide the underlying lease or debt instruments. Identify which assets may not be transferred to the buyer because they are owned by other parties.
The due diligence period in a transaction can make or break a transaction. Not being prepared will cost sellers money and could prevent the close. Well organized data is essential and is evidence of the seller’s professionalism which instills buyer confidence. It demonstrates pride of ownership and value and results in a smooth transaction and a fast close.