Part III: Due Diligence

This is the third article in our series on “Closing a Private Equity Transaction.” In Part I, the benefits of preparing for a transaction were explained, along with how best to prepare. In Part II, the letter of intent (LOI) was discussed, and key terms were identified and explained. Next, we walk through the due diligence process, which begins immediately after the parties execute the LOI.

Due diligence is used by both the buyer and seller to confirm the decision to proceed with an ultimate closing. Typically, the buyer’s examination of the seller’s business will be comprehensive and include information covering the past three to five years. This is necessary in order for buyer to understand what it will be purchasing, in terms of profitability, operations, business relationships, and potential liabilities. 
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Private equity buyers have become a significant player in the healthcare M&A space and they continue to focus on those types of healthcare services that have the greatest opportunities for aggregating. Traditional health system buyers have continued to focus on which physician specialties will assist most with alignment and care coordination strategies. While there are many similarities in transactions with these two types of buyers, there are often just as many differences. The following examples illustrate how those interests may vary:
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Part II: Negotiating the Letter of Intent

This is the second article in our series on “Closing a Private Equity Transaction.” As discussed in “Part I,” advance preparation is critical to getting a deal done. Once preparation for a potential transaction is complete, and an interested buyer or investor is identified, the parties will proceed with negotiating a letter of intent (LOI).

With a few exceptions (which are mentioned below), the LOI is a nonbinding document, but should include those terms essential for both parties to close the transaction. This is the moment when the parties will be in the best position to ensure that the time and expense that will be required for negotiating a definitive purchase agreement will be justified.  Such terms can include:
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Part I: Preparing for a Transaction
First in the series.

To increase the likelihood of ultimately closing a transaction with a private equity investor or buyer, the key is preparation.  Preparation is divided up into several steps.

First, before seeking a potential investor or buyer, the owners of the business should go through a semi-formal process to confirm the owners and key members of the business have shared, or at least compatible, motivations and priorities in a pursuing a potential transaction (e.g., capital for improving or growing the business, building a brand, creating value for a future exit, or cashing out). This will allow the business to focus on those investors/buyers with aligned expectations, and ultimately gain the required approval to close a transaction from the owners and key members of the business.
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