Laying the Foundation for a Successful Community Hospital Transaction

Few decisions are as significant for a community hospital as the decision to enter into a strategic affiliation, asset sale, merger, joint venture, or other dispositive transaction. But while the significance of such a decision cannot be overstated, the challenges of implementation – particularly for organizations without relevant transaction experience – cannot be understated. The following is a list of some of the key steps you should take when preparing for a potential transaction:

1. Designate a Leader and Build a Team. Identify and empower a project manager to take the lead on coordinating due diligence and transition preparation (not the CEO/CFO – they don't have time to run the hospital, negotiate a transaction and lead the diligence effort). Generally, it is advantageous to appoint someone within the organization who is intimately familiar with the hospital and its resources. On the other hand, because a transaction will require substantially all of your project manager's time and attention, some clients task counsel or other advisors to perform all portions of this function. You'll also need to identify the key individuals with authority over each department, division, and business unit of the hospital to work with the project manager to ensure every detail and issue that arises during the transaction is addressed in a timely manner. It's important that all members of the transaction team understand the project manager's role in the transaction and maintain constant communication with him/her throughout the deal. Marshaling internal resources and getting organized is critical to a smooth transaction process.

2. Organize your Filing Cabinet (in some cases literally!). Potential transaction partners will want to review all of your material contracts, licenses, permits, and other operational policies and documents. If these documents are stuffed in a drawer or scattered throughout your organization in a dozen different offices, buildings, or electronic document management systems, this can be a time consuming and painful process for both you and your transaction partner. In our experience, spending time to organize up-front will save a significant amount of time, money and headaches for both parties down the road.

3. Retain Experienced Advisors and Counsel. It's critical to obtain experienced counsel throughout the transaction process. (For more about knowing when to engage counsel see Dale's May 16^th post) As noted above, even experienced management teams will be occupied with the day-to-day responsibilities of operating the hospital and frequently are not in a position to quickly identify and address transaction issues as they arise. Experienced and sophisticated advisors and counsel provide a significant benefit by helping to navigate and streamline the complex transaction issues identified above, while also helping to reduce some of the burden on management.

4. Identify Regulatory Roadblocks. Does the state Attorney General have jurisdiction over the transaction?  Are there state or federal antitrust issues?  Begin working with your counsel early to identify and address any government approvals, consents and notices the transaction may require. Often, the process of obtaining government approvals is complex and time sensitive. Frequently, these processes determine whether a proposed closing date is realistic. Identifying and understanding regulatory roadblocks early on in the transaction process will greatly reduce the risk of potentially costly delays.

The transaction process is a marathon.  Careful planning and thoughtful guidance early in the process can be invaluable to reaching the finish line. While the issues and suggestions identified above will require the investment of resources earlier in the transaction process, the time and cost savings that result should not be underestimated.