By Chris Weingartner
It is a challenge to think of an industry more regulated than healthcare, and by extension the specialty pharmacy industry. From accreditation to audits, the I’s to be dotted and T’s to be crossed may seem endless. However, adherence to legal and compliance issues is of key importance to specialty pharmacy owners looking to sell their businesses. Below are the five key topics and issues we’ve observed be of utmost importance in the diligence phase of transactions for specialty pharmacies.
- Clean Corporate Documents
As is the case with all companies we work with, the need to have correct and valid corporate documents is a must. Before any proposed transaction can close, the buyer will need complete certainty that the pharmacy was set up correctly with all expected documentation. Articles of Organization/Incorporation, Operating Agreements, Stock Certificates, Certificates of Good Standing, Intellectual Property Registration, and other key items need to be documented, organized, and up to date.
- Credentialing Compliance
Buyers will certainly investigate any employees to ensure that they are compliant with all credentialing requirements needed for them to provide their services on behalf of your company. Ensuring everyone’s NPI number is active is the first step. Beyond that, ensuring that all employees and the entity itself have properly been credentialed by all required parties (Medicare/Medicaid, Commercial Payers, PBMs, etc.) is a must.
- Jurisdictional Approval
With each state having its own pharmacy board, there are 50 different hoops to jump through in order to be able to fill prescriptions nationwide. Ensuring that your pharmacy has always had the regulatory approval to fill in the states it operates in is key. Thankfully there are lots of great software companies springing up to help ensure that you’re not missing expiration dates, and staying within the bounds of what is legal.
- Documented Contracts
From PBMs to your drug wholesaler, having documented contracts is a key consideration that needs buttoned up. Gone are the days where a handshake sufficed. In an industry as heavily litigated as healthcare, having all agreements legally bound and enforceable through contracts are key. One of the most important sections of these contracts center around change of control provisions. Those provisions stipulate the actions required in the event a company sells in order to keep the contract valid and not voided.
- Tax Matters
Common across all industries, the company must be up to date on all tax matters. From filings to payment, one of the main focuses of diligence is ensuring the company to be acquired is not bringing any potential tax liabilities or litigation alongside it and that all jurisdictions it operates in are compliant.
In the purchase agreements, you’ll be asked to rep and warrant all compliance and legal issues, and indemnify the buyer against any liabilities stemming from being out of compliance or operating (purposefully or inadvertently) illegally. However, having these key components taken care of before signing an LOI and entering the diligence phase will greatly increase the likelihood that the deal closes and you successfully realize liquidity from the equity you’ve built in your specialty pharmacy.
About Founders Investment Banking
Founders Investment Banking (Founders) is a merger, acquisition & strategic advisory firm serving middle-market companies. Founders’ focus is on oil and gas, SaaS/software, industrials, internet, digital media and healthcare companies located nationwide, as well as companies based in the Southeast across a variety of industries. Founders’ skilled professionals, proven expertise and process-based solutions help companies access growth capital, make acquisitions, and/or prepare for and execute liquidity events to achieve specific financial goals. In order to provide securities-related services discussed herein, certain principals of Founders are licensed with M&A Securities Group, Inc. or Founders M&A Advisory, LLC, both members FINRA & SiPC. M&A Securities Group and Founders are unaffiliated entities. Founders M&A Advisory is a wholly owned subsidiary of Founders. For more information, visit www.foundersib.com.