M&A in the healthcare sector
We support investors, medical device and medical technology companies, hospitals, medical care centres, care facilities and medical and laboratory practices with our extensive knowledge of the healthcare sector. A particular focus of our advice is on M&A transactions. We often provide not only legal but also strategic advice and utilise our existing network of external healthcare market experts to achieve the best results for our clients.
The healthcare sector is more heavily regulated than other areas of the economy and is particularly influenced by political developments. The healthcare sector is facing major challenges due to demographic change, rising healthcare costs and drug prices, supply chain problems for drugs and raw materials and ESG requirements. However, every change in the healthcare market also offers opportunities, meaning that transactions could lead to investments, consolidation and cost savings, for example, and thus ensure more efficient healthcare provision.
M&A transactions in the healthcare sector
The German healthcare market is governed by various regulatory instruments which can have an impact on M&A transactions. Social security law is particularly important because it dictates the circumstances under which businesses in the healthcare sector can provide and bill services to the statutory social insurance providers (particularly the statutory health insurance providers). As a result, M&A transactions in the healthcare sector should be accompanied by both corporate law and medical law experts.
Medical practices
The sale of a medical practice is often associated with the following special circumstances:
- Since the physicians themselves are often the ‘locomotive’ driving the business, it is important to secure a long-term commitment from them in the form of employment contracts.
- The purchase price generally reflects the earnings or profits that the physicians will make at the medical practice after its sale and, for that reason, many contracts include earn-out provisions.
- The physicians on the selling side of the transaction are usually hoping for an appropriate sum of money for their retirement, which is why tax optimisations play an important role.
Transaction models: share deal vs. asset deal
The participation or transaction model that is chosen for the deal depends on the objective. In addition to the options available under transformation law, the private investor will primarily consider whether to purchase shares or assets.
In a share deal the company’s shares are purchased by and transferred to the investor. Unlike an asset deal, the target retains its legal identity and existing supply contracts are still effective after the transaction.
Share deals are also associated with tax benefits. For example, section 1, paragraph 3 of the German Real Estate Transfer Tax Act (GrEStG) stipulates that no real estate transfer tax is payable if less than 95% of the shares in the company that owns the real estate are acquired and the transaction structure is otherwise diligently designed. On the other hand, an in-depth enterprise valuation is necessary in a share deal because all of the company’s liabilities are transferred to the investor.
If the investor chooses to go the way of the asset deal and acquire the company’s entire assets (particularly its real estate), and the healthcare institution’s liabilities, rather than its shares, the situation is somewhat different. An asset deal is associated with a change of operator, which means new supply contracts have to be entered into. There are also stringent requirements to be met with regard to the definition of the assets to be transferred to ensure adherence to the principle of certainty under property and land-register law.
Clients
Orth Kluth has already advised clients on the sale medical practices and clinics with various specialisations (particularly nephrology and ophthalmology), whereby many of the transactions also involved a re-investment by the seller. Orth Kluth has also supported private equity companies in the medical practice acquisition process.
External partners
Orth Kluth collaborates with competent and dependable partners who have the necessary medical law expertise to support healthcare sector transactions.