The healthcare sector has seen robust levels of mergers and acquisitions (M&A) activity in recent years, but the inherent complexities of doing healthcare deals result in distinct pitfalls that must be avoided.
Mason Hayes & Curran (MHC) is one of Ireland’s leading law firms, and it also has Ireland’s largest healthcare legal team who have been responsible for guiding clients on many of the biggest deals in the healthcare sector in recent times.
Robert Dickson is a corporate partner with the firm and is also their healthcare sector lead. He will present at the Future Health Summit on the key legal considerations and challenges associated with healthcare M&A.
“There are particular complexities in healthcare deals,” Dickson says. “When you consider transaction structuring, due diligence, and regulatory clearances, these are all slightly different for healthcare transactions than they would be for other types of M&A.”
With due diligence, for example, there are particular issues to be mindful of. Dickson notes GDPR is now a big consideration in the healthcare space, for example. There are also distinct regulatory minefields in this area. “The precise subsector of healthcare needs to be considered,” he says. “For example, there may be consent required from the Health Information and Quality Authority (Hiqa). And depending on the type of business, you could be looking at artificial intelligence and the new regulations pertaining to that.”
While transaction structuring is largely similar to other areas of M&A, Dickson also notes that healthcare M&A can be “quite real estate heavy and the property element must be considered carefully, with split operating company and property company structures often used in healthcare transactions”. He also points out that some buyers prefer to proceed with a share purchase transaction rather than an asset purchase transaction. “This is also to do with the different regulatory issues involved. For certain sub-sectors of healthcare, if you go with a business acquisition you will have to re-register the provider, whereas if it is a share purchase you may not require that,” he explains.
The new foreign direct investment screening regime came into effect in January in Ireland. This allows the State to assess and investigate foreign investments and adds another layer of complexity. This will be relevant to a significant number of international healthcare transactions, Dickson says. “A lot of healthcare deals involving international investors into assets in Ireland will fall within this regime, whereas a greater proportion of deals in other sectors will not.”
‘There is also a need for careful transaction structuring, given that different structures can trigger different regulatory hurdles’
The healthcare sector is a particularly broad one, and there are many rapidly growing sub-sectors, Dickson notes. “There has been significant M&A activity in the care homes space over the past six years or so, as the sector has consolidated, albeit this slowed somewhat in the past couple of years due to inflation, higher interest rates, and challenges with Fair Deal rates. There is also transactional activity in special needs and disability services in Ireland, private hospitals of course, and some consolidation of GP practices.”
The homecare sector, already set to expand in light of our ageing population, is also set for a spike in M&A activity now that regulation by Hiqa of the previously unregulated sector is imminent. “We have advised on some homecare deals, but we expect this to trend to increase. International investors are expected to become more confident about investing in Irish homecare businesses once regulation of the sector commences later this year,” Dickson says.
Regulatory compliance of target businesses will usually be particularly important to investors acquiring healthcare businesses. Dickson explains: “If a buyer is acquiring a healthcare company, they will be looking at the compliance record of the target. This comes into play when a buyer is assessing whether or not to go ahead with the transaction, and any risks that need to be managed prior to closing or via deal protections in the transaction documents. There is also a need for careful transaction structuring, given that different structures can trigger different regulatory hurdles.”
But even with all the i’s dotted and t’s crossed, M&A transactions can fail at the last minute, Dickson notes. “Certainly, in the healthcare sector it is a possibility. Transactions sometimes stall or fail because of requested due diligence materials not being provided quickly or fully. Also, healthcare regulators are careful – and where a regulatory approval is required for the deal, it is not inevitable that the competent authority will ever give that approval.”
For more information on healthcare transactions, visit mhc.ie
