Navigating the M&A Landscape: Accounting Considerations Before, During, and After a Deal
“From a macro perspective, the Federal Reserve has had their long-awaited pivot to cut interest rates, and we believe that this is going to spur investment activity and unlock cash flows for organizations to invest in areas like health care,” says Danny Schmidt.
Operating in this energized environment, healthcare organizations exploring potential mergers and acquisitions (M&A) need to be aware of key accounting implications at each stage of the process.
Preparing for the Sale: Operational and Financial Readiness
Nick Ward outlines some critical preparatory steps. “If you’re looking to sell, get somebody from a due diligence firm to help on that sell-side valuation and maximize what your opportunities are,” he advises.
On the operational side, pre-emptive measures can streamline the due diligence process. “Operationally, look at your fixed asset schedules, your contracts. Look at inventory, look at leases—not only from a process and procedure standpoint of how your organization operates and accounts for those transactions throughout a regular basis, but thinking about how you can get that schedule ready for your due diligence, get your fixed assets disposals cleaned up ahead of time. Because part of that transaction is going to be going through all of those components and reassessing for value. So you don’t want to have to spend a whole lot of unnecessary time,” Ward explains.
Healthcare transactions have unique accounting complexities. “Additionally, you want to think through, particularly in the health care space, what are your accounting policies and procedures around your revenue cycle? That’s an area that’s unique to each health care company. But as an industry overall, it’s very unique how you’re looking at your allowances and your contractual adjustments.” Ward emphasizes the importance of documentation: “So, ensure that you’ve got those policies and procedures documented with clear understanding so that as you go into the sell side of the transaction, you really are able to have one foot ahead to make that transition as smooth as possible.”
Post-Acquisition: The Accounting Integration Challenge
“Let’s pivot a little bit to the post-acquisition. Once organizations have gone into the market, the transaction is complete, and the real work starts to begin, what should organizations be thinking about from a post-transaction perspective?” Schmidt asks.
Navigation the post-acquisition landscape involves meticulous accounting work. “Post-transaction, that’s where really your accountants are going to get all into the weeds of everything. You think of the amount of documents that are going to be in your closing binders on those transactions—between legal contracts, equity agreements, incentive units that might be issued—all of that needs to then be evaluated not just from a transaction, but also from the accounting perspective. What does that mean from a structure, a reporting unit? Are there certain requirements of your debt, the timing of your audit and all those things that you’re going to need?” explains Ward.
He also stresses the critical importance of proactive communication: “Picking up the phone at the last minute is probably not the best approach when communicating with your trusted advisors in this area. And so, communicate early and communicate often, and that’s due to time is money. And the cost to do business is substantially more expensive now than it was four years ago, eight years ago.”
In the current financial climate, maximizing efficiency is key. “We’re in a higher-for-longer operating environment, so using your advisors to help in these areas enable organizations to focus on their key strategic priorities and really focus on optimizing, enhancing their enterprise value,” Ward concludes.
