Function: Deal Team
Gabe Mesanza, Huron Capital | An Expert Perspective on Culture, Growth and Cash Flow in Private Equity
Healthcare Compliance: Due Diligence Checklist
Healthcare is a hot sector for private equity firms looking to acquire new portfolio companies.
Buy-side commercial due diligence on healthcare compliance is table stakes before any deal gets done.
One expert service provider from our network says his firm has seen an influx of diligence requests in this industry since the beginning of 2022, and it hasn’t slowed down since.
“There continues to be a lot of interest in the healthcare sector, whether it’s device manufacturers or contract manufacturers, and even services,” Don Jenkins* of M&A Healthcare Experts says. “Whether it’s tele-health-related services or just other technology platforms that can address healthcare service delivery.”
Here are some of the top trends and must-haves in healthcare due diligence.
Private Equity: Healthcare Sector
With so much money to spend on hand, Jenkins says that middle-market private equity is all over the map.
When he thinks about the last 50 projects they have done for private equity firms, he estimates they would span 20 different markets.
There are a couple, however, that have stood out since as we head deeper into an uncertain, if not turbulent economy. One of those is healthcare.
Firms want to dig deep to learn more about the devices and software systems being used in hospitals. Just as popular, though, are in-home services that allow people to receive diagnosis and treatment from the comfort of their home. This trend has become especially important since the onset of COVID.
Healthcare Due Diligence Process
“Essentially the goal of commercial due diligence is to validate the story that the target’s telling, or to identify the reality of the marketplace out there so that they can make an informed decision on their investment,” Jenkins says.
While the fundamentals of commercial due diligence are the same from one market to another, there are nuances to businesses based in hospitals, pharmacies and other related medical organizations.
Since these companies are creating or using products that affect people’s health, there’s increased risk, which means more scrutiny is needed.
“It can be a very different set of objectives, but if it’s a product, then there definitely will be regulatory issues involved,” Jenkins says.
Top Trends in Healthcare Due Diligence
Service providers in healthcare aren’t just trying to make better products and improve services, they also want to be more affordable.
“It’s still technology, but we’re not trying to design the greatest device, the greatest stent in the world, or the greatest cardiovascular diagnostic product ever made,” Jenkins says. “It’s really what sort of products and services can we develop that are going to not only get the job done, but do it in a more cost-effective manner so that it’s more affordable for the healthcare ecosystem.”
In particular, that ecosystem includes insurance providers and patients. The easier it is for them to engage with a health company’s products or services, the more successful the business will be.
“There are just a lot of moving parts in healthcare that make it an interesting space,” Jenkins adds.
BluWave co-head of research and operations Scott Bellinger most frequently fields calls related to these areas:
- Medical Devices: “Regulatory review on manufacturing processes to make sure they’re FDA compliant.”
- Operational Diligence: “Understand how you can manufacture those devices at a faster more efficient clip.”
- Ancillary Service Buildouts: “For example, if you’re ear, nose and throat, do they have an ambulatory services center?”
Jenkins isn’t the only one seeing an increased demand for commercial due diligence in healthcare. It continues to be one of the most important industries to our clients as well.
That’s why we spend so much time connecting with and evaluating due diligence service providers who know healthcare – and every other sector that touches private equity – inside-out, backward and forward.
Our research and operations team takes a hands-on, white-glove approach to every project they service, from the first scoping call until after the engagement is complete.
If you’re looking for proven, PE-grade service providers to conduct buy-side diligence on your healthcare acquisition, contact us today. We’ll provide two or three best-fit options for your exact situation and specific needs within a single business day. From there, we’ll hold the third-party resource accountable and make sure they’re meeting all your needs until the ink is dry.
*Privacy is important to us. While the source and company name have been changed, these are real quotations from a real service provider in the BluWave Business Builders’ Network.
What To Do When Your Service Provider is at Capacity
Connecting with a service provider you can trust is like looking for a great dentist. Once you find “the one,” you wouldn’t put your teeth in anyone else’s hands.
The same goes for your business. After a successful engagement with a trusted third party, you save a lot of time by contacting them directly the next time you have a need.
There are reasons you have go-to service providers: they’re fast, reliable and they know your business.
But if you love them so much, you’re probably not their only client. Far from it.
So what happens when you reach out and they tell you they simply don’t have the capacity to take on more work on the timeline you need? Or worse yet, they give you their B-team.
We’re glad you asked.
There are a number of reasons service providers could suddenly be in high demand. A bounce-back from a recession. A surge in deal flow. A hot new trend of which everyone’s trying to stay ahead.
When this happens, BluWave is on standby with a deep bench of trusted, PE-grade third parties who can deliver the exceptional work you expect no matter what your industry.
In fact, we experienced this post-COVID recovery when the whole world got back to business at once and it seemed like there wasn’t enough help to go around. At that time, we heard from dozens of private equity firms that couldn’t book their preferred third-party resource.
We helped those firms by connecting them with industry-specific firms and consultants that understood their business’s most pressing needs.
Every service provider in the Business Builders’ Network has gone through a rigorous vetting process, giving us confidence in every match we make whether it’s a first-time engagement or a repeat relationship.
BluWave founder and CEO Sean Mooney has three tips for organizations when their usual service providers are at full capacity.
1) Use Alternatives
“If you’re go-to is sold out, don’t try to force them into giving you capacity. You’ll get the C team,” Mooney says. “There are plenty of other comparable PE-grade specialists that you should use.”
2) Use Substitutes
“There are other diligence and value creation products that go by a different name but still serve your need,” he adds. “For instance, if you can’t get a commercial due diligence group to meet your deadline, use a voice of the customer group to do a deep dive on your target’s customers.”
3) Use Independent Consultants
“There’s a select world of independents who spun out of name-brand shops and can give you the same product at a fraction of the cost,” Mooney says. “This cohort works well not only for commercial diligence, but also for operational and HR diligence as well as value creation.”
Mooney recognizes that trusting your most important work to new partners can be scary. With the right introduction, though, the risk can have a huge payoff.
“Using new groups can be nerve-racking,” he says, “but the BluWave network of PE-grade resources is on standby to meet your specific needs.”
Whether your go-to service providers are at full capacity, or you just don’t know who to turn to, give our research and operations team a call. They’ll connect you with a shortlist of exact-fit third parties within a single business day, and be by your side until the completion of the project.
Market Study for Financial Services Acquisition Target
Service Area: Commercial Due Diligence
Client Type: Upper-Middle Market Private Equity Firm
Service Provider Type: Strategy – Market Study
Industry: Professional Services
The Need
Niche-Specific Financial Services Market Study
An upper-middle market PE firm wanted to conduct a comprehensive market study on an acquisition target: a company that provides part-time finance resources and accounting services to non-profits.
The Challenge
Navigating Multifaceted Industry
The challenge lay in dissecting the multifaceted industry landscape, combining accounting, consulting and staffing. The market study would need to reveal client behaviors, buyer dynamics, TAM and competitive landscape.
How BluWave Helped
Strategic Connection for Deep Market Insights
BluWave identified a market study firm with:
Non-profit Expertise: Specializing in financial services, offering insights into accounting, consulting and staffing dynamics.
Comprehensive Analysis: Explored client behavior, buyer landscape, competitive positioning and growth potential in nonprofit financial services.
Future-Forward Focus: Investigated data analytics and cloud synergy with nonprofits, enhancing AI/ML capabilities and implementation strategies.
The Result
Study that Surpasses Expectations
The market study revealed all the PE firm had hoped for and more:
Holistic Understanding: Unveiled nonprofit finance nuances, including part-time resources and consulting, providing a comprehensive sector view.
Strategic Opportunities: Analyzed client behaviors and growth prospects, empowering the PE firm with expansion strategies.
Future Resilience: Explored data analytics and cloud services’ role in nonprofit finance, boosting sector resilience and innovation.
Great communicators with a strong command of the materials and the mandate.
Director at PE Firm
Navigating an Intercontinental Aerospace Merger
Service Area: Merger Planning & Integration: Post Merger Integration
Client Type: Middle Market Private Equity Firm
Service Provider Type: Post Merger Integration Consultant
Industry: Manufacturing: Aerospace
The Need
Forging Unity Across Borders
When a middle-market private equity firm acquired an international aerospace entity, the challenge of seamless integration across borders emerged. Seeking expertise beyond their organization, they turned to BluWave for strategic matchmaking with a post-merger integration (PMI) specialist.
The firm understood the critical role of effective integration in maintaining business continuity and customer trust, and they wanted outside help to do it.
The Challenge
Bridging Gaps in Aerospace Integration
With a multi-country aerospace entity acquisition, the complexities of integration spanned geographical, operational and cultural dimensions. The task of harmonizing processes, systems and customer interactions across 14 countries presented a formidable challenge. The focus was on preserving customer trust, especially with industry giants, while optimizing operational efficiency in the global landscape.
How BluWave Helped
Industry-Specific Resource with International Experience
BluWave’s intimate knowledge of the world-class service providers in its network accelerated the PE firm’s selection of an exact-fit service provider:
Expert Identification: BluWave knew exactly which PMI specialists had aerospace knowledge and cross-border integration experience.
Customized Matching: Through a thorough assessment of the client’s requirements, BluWave matched them with a PMI consultant whose expertise aligned with the specific challenges of aerospace integration.
Strategic Alignment: BluWave ensured that the chosen PMI expert understood the client’s objectives, including maintaining customer trust, achieving operational efficiency and realizing synergies.
The Result
Achieving Integration Excellence
The PMI specialist delivered for the PE firm across the board:
Seamless Transition: The acquired aerospace entity underwent a smooth integration, preserving customer relationships and business continuity.
Operational Excellence: Cross-border collaboration and efficient integration processes contributed to optimized operations.
Customer Trust: Through meticulous execution, customer trust and satisfaction were upheld, especially with industry giants.
Manufacturing Growth through Market Insight Diligence
Service Area: Commercial Due Diligence: Market Study
Client Type: Middle-Market Private Equity Firm
Service Provider Type: Market Research Firm
Industry: Manufacturing
The Need
Seizing Growth Potential in Heat Treating
Our middle-market private equity firm client sought to empower its portfolio company operating in industrial manufacturing. The portco was a leader in gas nitriding technology, primarily catering to the automotive, aviation and industrial sectors. The firm aimed to broaden the company’s horizons by identifying new opportunities within heat treating, especially in areas beyond gas nitriding. The goal was to expand its offering through strategic add-ons that leveraged different heat treating technologies, driving further growth and market penetration.
The firm knew it would need a world-class commercial due diligence resource to match its ambitions.
The Challenge
Navigating the Complex Industry Landscape
The private equity firm faced the challenge of exploring a highly specialized sector – heat treating technology – to identify viable add-on opportunities. The task required pinpointing key players, understanding market drivers and evaluating potential target companies that aligned with the portfolio company’s capabilities and ambitions. Budget constraints demanded resourcefulness in delivering valuable insights without compromising quality.
How BluWave Helped
Industry-Specific Research Firm To Drive Expansion
BluWave connected the private equity firm with a PE-grade resource to conduct an in-depth market study, leveraging their expertise in market research and manufacturing. They then uncovered key players, market trends and drivers within the heat treating technology sector. Leveraging their understanding of the end-use industries, including automotive and aviation, the firm identified strategic alignment opportunities.
Their familiarity with furnace manufacturing, heat treating elements and component industries enabled them to analyze competitive processes, production methods and best practices.
The Result
New Pathways to Expansion
The third party firm’s market study equipped the portfolio company with a roadmap for expansion in the heat treating sector. By identifying key players, drivers and market trends, the private equity firm gained insights into new growth avenues. The study not only laid the groundwork for strategic add-on acquisitions but also provided a broader understanding of market dynamics, fostering informed decision-making.
The portfolio company was empowered to consider new technologies and approaches, aligning its offerings with the evolving demands of the automotive, aviation and industrial sectors.
Q2 Snapshot: Key Findings from BluWave’s Private Equity Insights Report
Cici Zheng, ParkerGale Capital | Private Equity Advice on Pricing, Human Capital and More
David Hellier, Bertram Capital | Harnessing Data to Innovate, Differentiate and Evolve
Buy-Side Commercial Due Diligence: What is it?
Commercial due diligence is a make or break process in mergers and acquisitions.
In buy-side due diligence, the focus is on the acquiring party, rather than the target company. This makes it distinct from sell-side due diligence, which is conducted by the organization that may be acquired.
“It’s standard operating procedure for private equity firms if they’re buying a company,” says Scott Bellinger, Bluwave’s co-head of research and operations. “No matter how good a company is, if the market is bad, it won’t succeed.”
Buy-side commercial due diligence looks extensively at the target company’s overall viability. It’s typically conducted by private equity firms, investors or other acquiring entities to evaluate risks and opportunities before signing on the dotted line.
We’re going to explore the key aspects of this process in private equity acquisitions, including financial analysis, commercial viability assessment and target company analysis.
Financial Analysis
Understanding a company’s financial health is a crucial aspect of buy-side commercial due diligence.
At this stage, the buyer reviews the target company’s financial statements, including balance sheets, income statements and cash flow statements.
A qualified finance professional can be invaluable in this step.
Market Size
Market size is also an important pre-acquisition consideration.
It helps identify potential financial red flags, such as declining revenue, which could suggest a shrinking market. If too many warning signs arise, the buyer may reconsider moving forward.
Working with an industry-specific service provider can help with this, saving your firm from a bad deal, or confirming a good one.
READ MORE: What is Commercial Due Diligence?
Total Addressable Market, Commercial Viability Assessment
A successful acquisition is contingent on the future growth potential of the target company. That’s why a commercial viability assessment forms an integral component of the process.
Here, the total addressable market (TAM) for the target company’s products or services is evaluated. Understanding the TAM provides insights into the potential growth and profitability of the target company, making it a critical metric for prospective buyers to consider.
Competitive Landscape
Another important factor is the competitive landscape within the target company’s market. This evaluation gives the buyer a comprehensive understanding of the company’s positioning, its main competitors and the regulatory environment in which it operates.
A thorough understanding of the competition and industry regulations can provide valuable insights into the target company’s resilience and adaptability in the face of market changes.
Target company analysis is another aspect of buy-side due diligence, and it usually comes toward the end of the process.
While the entire due diligence process evaluates a target company, the goal at this stage is to review operations, management and culture. This is how the buyer identifies issues that could affect the acquisition’s long-term success.
Voice of the Customer
Assessing customer satisfaction, identifying potential customer concerns and understanding customer loyalty can all help better understand the target company’s potential long-term success.
An exact-fit service provider will focus on things like customer lifetime value, retention and how products and services can be improved.
READ MORE: 5 Steps to an Effective Voice of the Customer Strategy
Target Company Evaluation
While the entire commercial due diligence process involves looking into the target, firms should also take a close look at a company’s operations, management and culture.
Before signing on the dotted line, it’s important that you not only align on values, but that the teams are a good fit for working together.
This also helps the buyer – usually a private equity firm – understand the potential synergies between the target company and their existing portfolio companies.
Bellinger says that working with an expert third-party to conduct buy-side diligence can be a huge advantage.
“You can get providers who have deep experience in a certain industry or certain types of companies that can perform the study on a lower cost profile than a brand name firm who will have to spend time getting up to speed,” he says. “Our providers already know everything about that industry and have prior experience.”
Buy-side due diligence is a critical process in private equity acquisitions, enabling buyers to make informed investment decisions.
BluWave has expertly vetted commercial due diligence resources on standby to provide comprehensive support during the buy-side due diligence process.
Our research and operations team will connect you with the best fit for your project, ensuring that you have access to the right expertise at every step of the process. Set up a scoping call today.
Bellinger adds: “We have the most amazing bench of buy-side commercial due diligence providers, so we know every buy-side firm in middle-market private equity.”