How Important is Financial Due Diligence in Behavioral Health Mergers and Acquisitions?

The last few months saw a lower activity in behavioral health mergers and acquisitions as compared to 2021-22. This increases the significance of careful financial evaluation to ensure that transactions align with business goals, regulatory requirements, and long-term profitability. Financial due diligence helps buyers and sellers alike in assessing risks and determining fair valuations. This blog will explain the significance of financial due diligence in behavioral health mergers and acquisitions in detail. 

Do you need help with behavioral health mergers and acquisitions? Get a consultation from Strategique Partners’ M&A consulting services today. 

Importance of Financial Due Diligence in Behavioral Health Mergers and Acquisitions

The behavioral health market operates within a complex net of regulatory and ethical expectations and includes complicated financial structures. Therefore, when a business deal takes place in this sector, several key factors such as these are important in understanding behavioral health M&A:

1. Operational expenses
2. Reimbursement models
3. Compliance risks

Here are some of the most significant ways in which financial due diligence can help you:

1. Helps Find Out the True Value of a Business

The importance of healthcare business valuation in behavioral health M&A can not be overemphasized. Buyers and sellers need to ascertain the true worth of the business. Financial due diligence can help them in asserting the following:

1. Earnings
2. Assets
3. Customer Base
4. Liabilities
5. Revenue sources

Business valuation is one of the most complicated yet the most important aspects of business transactions. You can get help from financial valuation services to cover this base. 

2. Identification of Financial and Operational Risks

To ensure prosperity in the future and understand the actual worth of business, a comprehensive knowledge of all the risks is essential. What financial due diligence helps you in is identifying hidden risks by encouraging a close review of the following:

1. Insurance reimbursements
2. Financial statements
3. Regulatory compliance

Financial and operation risks can go unnoticed due to common mistakes in behavioral health M&A. This is why financial due diligence is essential.

3. Helps to Ensure Compliance with Licensing and Accreditation Standards

Another key domain that financial due diligence will help you assess is licensing and regulatory compliance. It will help you understand tips for successful behavioral health licensing, which you can compare and contrast with the business to be merged or acquired. In addition to licensing, it also helps you with

1. Regulations and Ethical Considerations like HIPAA Standards
2. Accreditations in Healthcare Sector

You can get accreditation, regulatory and licensing support from Strategique Partners.

4. Eases in M&A Negotiations and Deal Structuring 

Financial due diligence encourages well-conducted financial reviews. This can empower buyers and sellers to negotiate fair terms and avoid issues post-acquisition. This is how financial due diligence can ease your M&A negotiations and help you structure good deals.

 

 

Key Aspects of Financial Due Diligence in Behavioral Health M&A

Good strategies for successful behavioral health M&A should include critical aspects of financial due diligence. Some of the key aspects of financial due diligence in the M&A process are explained here:

1. Payer Mix, Revenue Streams, and Insurance Reimbursement Models

Behavioral health businesses often rely on multiple revenue streams. The reimbursement methods are often complicated. These include the following methods:

1. Insurance Credentialing and Reimbursement
2. Private Pay and Cash Payment
3. Governmental Grants and Funding

When you carry out financial due diligence, you ensure financial sustainability and assess reimbursement denials or changes in payer policies, if any. You can hire financial and billing services from experts to understand the payer mix better. 

2. Costs and Profitability 

The second essential aspect of financial due diligence is examining a critical facet of financial sustainability, which is the operational costs and earnings of a behavioral health business. It comprises the following:

1. Expenses on operations, staffing, and other things
2. Profitability 
3. Behavioral health revenue cycle management

Financial due diligence helps know whether a business has stable earnings, efficient billing processes, and control over costs.

3. Debt and Liabilities

For the complete financial security of a business, it is essential to uncover the existing or potential financial liabilities. Behavioral health businesses generally have the following liabilities:

1. Unpaid Loans
2. Unpaid Taxes
3. Pending Lawsuits
4. Compliance Penalties
5. Real Estate Lease Agreements

Examining these areas of a business can help you identify any financial burden on the company before the M&A deal.

4. Staff and Workforce Details

The success of a behavioral health business relies greatly on its workforce. However, the recent behavioral health staffing shortage has become a great challenge. The Bureau of Health Workforce’s report suggests that, as of December 2023, nearly 169 million Americans survive in the Mental Health Professional Shortage Area. This is why it becomes all the more important to evaluate the following staffing details:

1. Employee contracts and credentialing
2. Compensation structures and payroll obligations
3. Staff turnover and retention rates

You can get better consulting about workforce retention from our behavioral health staffing experts. 

Practical Significance of Financial Due Diligence Behavioral Health M&A

Behavioral health M&A comes with its unique set of challenges that need consideration. You should be well prepared for them and financial due diligence is one such strategy that can help you be well prepared in terms of buying, selling, or business investments in the behavioral health sector.

How Financial Due Diligence Can Help You Buy Behavioral Health Businesses: Buy-Side Due Diligence

Financial due diligence is a must for buyers of behavioral health businesses as it will do the following:

1. Helps in ensuring that the target company of a buyer aligns with the growth and investment strategies and objectives of the buyer
2. Helps in identifying risks that can jeopardize future profitability
3. Helps in negotiating and structuring a fair deal

We bring buy-side M&A advisory for buyers of behavioral health businesses on sale to ensure a good deal.

How Financial Due Diligence Can Help You Sell Your Behavioral Health Businesses: Sell-Side Due Diligence

Similarly, for sellers, financial due diligence can do wonders. Sell-side due diligence for behavioral health M&A can help you in these ways:

1. Ease in preparing business for smoother and transparent transactions
2. Speeds up the sale of your business by encouraging buyers’ confidence
3. Supports better valuation of your business
4. Helps in negotiating better deal terms

You can ensure sell-side financial due diligence with the help of our sell-side consultancy

How is Financial Due Diligence Help for Investors and Business Owners in the Behavioral Health Sector?

For investors and new entrants into the behavioral health market, financial due diligence can help in the following domains:

1. Financing for acquisitions or expansions
2. Regulatory compliances
3. Operation efficiency

Strategique Partners’ operational services can prove helpful in this regard.

Ace Behavioral Health Financial Due Diligence With Behavioral Health M&A Expert, Strategique Partners

Strategique Partners offers its expertise in mergers and acquisitions in the behavioral health market as it stays on top of market trends and landscape. Financial due diligence is what our M&A experts always encourage in business transactions. The following services incorporate due diligence in their core to help you with easy deals:

1. Mergers and Acquisitions
2. Company Development 
3. Financial Valuation
4. M&A General Consultation

FAQs Regarding Financial Due Diligence in Behavioral Health Mergers and Acquisitions

We have answered a list of commonly asked questions about financial due diligence in behavioral health mergers and acquisitions in the following lines for greater understanding:

What Are the Key Challenges in Financial Due Diligence for Behavioral Health M&A?

The main challenges to financial due diligence for Behavioral health M&A include the following:

1. Complex Reimbursement Models
2. Revenue and Profitability Variability
3. Data and Record-Keeping Issues
4. Staffing Shortage
5. Regulatory and Compliance Risks

How does Financial Due Diligence help in Behavioral Health Business Valuations?

Financial due diligence helps with valuations in the behavioral health field in these areas:

1. Ensures Revenue Stream Analysis
2. Ensures Financial Sustainability
3. Closely Reviews Profitability and Cost Structure
4. Keeps a check on Revenue Cycle and Billing

A wholesome financial analysis of all these factors is decisive in behavioral health mergers and acquisitions. 

How Is Financial Due Diligence Different From Audit?

While normal financial audits focus on historical accuracies, financial due diligence takes a broader approach to accommodate opportunities, financial projections, and risks. This way financial due diligence is the right suit for transaction-related decisions like behavioral health M&A.