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Top 10 M&A tips: Timing is everything in M&A for the retirement living & aged care sectors

Rohan Harris

It’s no surprise that mergers & acquisitions (M&A) activity continues to ramp up across the retirement living and aged care sectors. We are seeing this happen first-hand on both buy-side and sell-side engagements. Some of the continuing trends are larger or experienced operators looking to expand their portfolio or consolidate, smaller operators looking to exit, and also some distressed sales.

The increased compliance requirements and ongoing legislative reform agendas, makes operating within these sectors difficult as each change can likely bring compliance requirements and increased costs. The challenge organisations face with attracting and retaining quality staff and seeking adequate funding all add layers of complexity for the sectors, particularly for residential aged care.

There seems to be growing momentum for necessary changes to the aged care funding model with the recent release of the Draft National Strategy for the Care and Support Economy by the Australian Government, but how long that will take remains uncertain.

A reminder as to the importance of timing in M&A transactions and delays in executing was found in the recent reporting of the aborted private equity takeover of Tyro Payments.

Background

The Tyro experience reportedly involved over 9 months of negotiations before the potential acquirer walked away. Tyro shareholders immediately suffered a 20% drop in the share price.

The underlying reasons which caused the deal to fall over were no doubt many and varied, but were also probably amplified by the current economic uncertainties. At the same time, there are willing sellers and cashed-up buyers in the market for deals, presenting opportunities on both sides.

The learnings from this case can be applied to deals across the retirement living and aged care sectors.

Top 10 tips to successful M&A

So what can retirement living operators and aged care providers do to mitigate M&A delays in deal execution?

  1. Make sure the business is deal ready – Sellers should put themselves in the buyer’s shoes and sort out problems that could cause a buyer to walk away or drop their price . Problems with compliance and employment are two of the top issues in the sector at the moment, but there are others.

  2. Be absolutely clear on the answer to the question of why you want to buy or sell – Use that as a reference point throughout the process when negotiations may stall.

  3. Be organised - Agree on a deal timetable and key milestone dates, and stick to the timetable.

  4. Engage your legal, tax, financial and commercial advisors at the start of the process – Avoid delays caused by surprises when key issues are not identified and addressed early in the process.

  5. Invest in applying the necessary people and resources to deal execution – Trying to combine people’s ordinary day jobs or business as usual tasks with a deal process is a common cause of delay.

  6. Get legally binding commitment on the key terms as soon as possible – Narrow down the list of conditions which may give parties an exit option.

  7. Pre-plan with contingency plans for any obstacles that may arise – For sellers, anticipate the due diligence process by gathering the necessary information and presenting it in a secure online data room.

  8. Understand the scope and key milestones in advance – For buyers – be clear on the due diligence scope, what’s going to be important and material in your decision making and what is not so important.

  9. Stay connected – Identify and engage with third parties who will have a say in deal timing and execution – eg. financiers, regulators, landlords, key contract counterparties.

  10. Have a fall-back position if the deal falls over – Break fees should be negotiated to cover deal costs if a party walks away.

If you require assistance in relation to commercial transactions in the retirement living and aged care sectors, please do not hesitate to contact Rohan Harris, Solomon Miller or Rosemary Southgate or the broader Russell Kennedy Aged Care Team.

For examples of our recent deals you can visit our M&A page.

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