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Apr 09

Another take on physician practice merger due diligence

By now the merger committee has the due diligence process underway. The merger team has been interviewed and assembled. The initial funding for this due diligence process has been estimated and funded. The treasurer responsibilities have been assigned for reporting of these premerger costs. The merger committee has established its methodology for communications and established a meeting schedule for the committee as well as the merging entities. Individual physician members have been interviewed or surveyed in reference to the benefits they hope to derive from the merger as well as any issues, which are of concern for them. The merger facilitator has compiled this information and communicated it to the merger committee, which is utilizing this information to not only assess the viability of continuing with the merger but hopefully to develop its vision or mission statement. The committee has drafted and executed a letter of intent in reference to the merger, which outlines basic responsibilities for everyone. The information requests have been sent to each merging entity with instructions and timelines for submission. The committee is scheduled to complete the assessment of premerger legal issues in reference to the merger and will be reviewing possible organizational structure options with legal counsel and the CPA. As information begins to be assembled, the merger committee will prioritize the common deal killers to be addressed early on in the due diligence process.

The issues incident to a merger are for the most part very similar, regardless of the number of physicians or merging groups. However, the greater the number of entities that are party to a merger, the more difficult, costly, political and lengthy the merger process will be. When more parties are involved, it requires getting resolution on more issues by more decision-makers.

The merger committee must take this into consideration during the due diligence process. For example, it might appear to be very beneficial and even seem practical to merge six practices at one time. However, close scrutiny should be made as to what this will do to the complexity of the merger, the reasonableness of doing this all at once and the significant change in culture that will occur. It may be more advisable to take the two or three medical practices which share the most common culture and important attributes to be the first entities merged with the other medical practices being merged in at an agreed upon later date. The merger model established with the initial practices helps facilitate the latter mergers, which can be more difficult if there are more significant differences between the groups. This is an option, which the merger committee must always consider. Sometimes it can be too daunting of a task for management and the merger team to facilitate a merger of numerous groups all at once. Another option that is available to the merger committee in these types of situations is the ability to negotiate and execute the merger for a large number of groups; however, the actual implementation and consolidation of operations occurs over an extended period of time.

The merger of your practices may be very practical and offer some extremely attractive benefits; however, as we have stated several times, this is a very complex process and the critical issue of completing a thorough due diligence process rests solely upon the merger committee’s shoulders. If your merger committee members are not truly prepared to invest the time, money and effort into this due diligence process, your chances of seeing a successful merger are very, very slim. Never discount the importance of writing and continuously reviewing your vision statement to keep the merger process on track and focused toward the benefit that started the process initially.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →