Intro/Outro (00:01):
Welcome to Health Law Talk, presented by Chehardy Sherman Williams health Law. Broken down through expert discussion, real client issues and real life experiences, breaking barriers to understanding complex healthcare issues is our job.

Conrad Meyer (00:23):
And good morning, everyone, or good afternoon, whenever you’re listening to the podcast here. Chehardy Sherman Williams Health Law talks in the studio today, Conrad Meyer, your healthcare attorney, and Rory Bellina in the house. And we have a special guest, well, not really a special guest. He’s always here. We just need to get him in the studio more often. George Mueller, our corporate counsel securities lawyer who’d done a lot of deals with all of us and really sort of the backbone of of the corporate section here at Chehardy Sherman. How y’all doing, guys? Good.

George Mueller (00:54):
Good morning. Good

Conrad Meyer (00:55):
Morning. And, and just as the title suggests today on the podcast, we’re gonna be talking about deals and healthcare deals. And, and really you can apply what we’re gonna be discussing, I guess, George, to, to any kind of deal, cuz we’re gonna be speaking sort of in generalities. But but because of, it’s because health law, we’re gonna be trying to focus this on a little bit of of, on healthcare. So with that being said, a deal, what, when, when you sit down and a client’s call and they say, Guys, I need help with a deal. What, what’s the first thing that pops in your mind? George?

George Mueller (01:37):
I, you know, you typically want to know what they’re doing, what they’re, what they’re selling, what they’re trying to buy. You know, you want to know what industry they’re in. You start to ask some specifics. They’ll usually volunteer a lot of that. But at some point in time, it gets down to timing, price, affordability. And then, you know, the old Nick Saban adage comes in, You trust the process. Right? And there’s a process, as you alluded to earlier in the introductions where you know, deal work to a certain degree, conforms to duplication and the ability to apply your deal process to any deal. But in healthcare, I think certain specific issues emerge. And we’ll get into that some of that later. Some of that informs how you do your loi and some of that, A lot of that informs how you do your due diligence. And so I, I think the answer is, you, you speak to the client, you figure out what they’re doing, who they’re buying, who they’re selling to mm-hmm. and kind of how they want to do the deal.

Conrad Meyer (02:43):
And I think when we talk about loi, we mean letter of intent. And, and for the listeners who might not know that and, and so I totally agree, George, I know there’s a process, Rory I know you and I, we get the calls sometimes and it’s always, I wanna buy a practice. I want to join a practice. I want to sell my my radiology facilities. I want to all these different things. So what, what’s, what’s, say you on the healthcare deal, What’s going on in your mind the first time and you hear that call?

Rory Bellina (03:12):
Well, usually one of the first things I’ll, you know, ask about is, do you already have an loi? Because in the recent history , we’ve been blessed or cursed with deals that have come to us, and you get the phone call and it’s a client saying, Guess what? I’m ready to sell the practice. I signed the LOI yesterday. I’m emailing it over to you now, and I need your help.

Conrad Meyer (03:33):
So do you have that pit in your stomach when you hear that? Yeah.

Rory Bellina (03:36):
That it’s a lot different of a perspective and kind of a plan than what I’d much rather get the deal, how George referenced it, where they come to you first before really doing or signing anything. But sometimes they come to us and, and the otherwise already done it. Sure. You gotta walk it.

George Mueller (03:51):
A lot of our clients who are serial entrepreneurs have a, have a tendency to pre-cook the deal and bring it to you. And of course, obviously if they’re locked into an LOI as we’ll get through when we go through LOI process you can really give away some big points in your deal. You can really change the complexion of how the deal goes, the allocation of risk who’s paying for what. I mean, it can be very open ended. They can be very much sort of damocles and everyone pays all the closing costs, even if you don’t close type thing, where it becomes really expensive not to close your deal. Right. And you know, whether you’re, depending on whether you’re the buyer or the seller and how that tees up, it’s tough. But yeah, they, one of the, certainly one of the first things you wonder is how far along are you? And you sort of, you kind of cringe and hold your

Conrad Meyer (04:41):
Breath a little bit. Like, and that’s funny to your point about being the good chef, right? So I mean, a lot of those entrepreneurial clients, you know, think that they, that they could throw the tots pizza in and call it a pizza, right? So we don’t wanna use a lawyers, we just wanna throw it in and see what comes out first. Yeah. Yeah. Certainly a little scary. And

Rory Bellina (04:57):
I’ve gotten Lois that have been four pages, and then I’ve gotten some that are 18, 19, 20 pages. And I think it, it’s, it’s obviously better for us to come in on the front end before the LOI is done. Sure. Because, you know, some, Lois, I think the main focus is how much are we gonna get paid? You know, is there gonna be some sort of non-compete that comes along with it? Are we gonna be, you know, forced employees, that kind of thing. Mm-Hmm. , you know, when is this gonna happen? And then that’s it. And there’s so many more things that really should be in there Absolutely. That could, that could really make or break the deal that, you know, then we have to address with the client or the client we have to address with buyer or sellers council. And, you know, that could, that could break the deal right there. And, and, and they’ve wasted kind of time and some resources on doing an LOI without talking about some really big key points.

George Mueller (05:45):
Sure. And, you know, staging in the level of diligence and information that the client gets or has gotten about the target entity or the target buyer is all usually governed in the loi. But the ability to kind of just, I mean, you talk about basic stuff like identifying the parties the price, the price usually in those first couple of paragraphs after you’ve identified and define the air quotes that the listeners can’t see transaction that price. I mean, some people just put a flat number, Well, that’s a problem, right? Because you’ve gotta qualify what that number is. We’ve seen, depending on how informed and sophisticated the parties are relative to how they come to the deal and who else they’re being advised by typically, you know, you know, a deal is at least gonna be guided by some sophisticated parties involved.

(06:38):
If you see, well, it’s based on a multiple of an ebida and that multiple looks like it’s on market and that EBIDA looks like it’s something that’s attainable and compares with historical performance of mm-hmm. , the target entity. And then with a bunch of qualifier language that says, and we get to look and see if that, or I look to see if that multiple still makes sense based on our diligence and that overall enterprise value. And then, you know, when buying practices and doing things, keep in mind, the larger the deal, the more likely it is that rollover equity is gonna come in. All, all that informs one of the first C King’s first key things that we typically encounter, which is identify identification of the parties and determination of deal value and price.

Conrad Meyer (07:24):
Interesting. So what I guess the, the question is, is, and, and, and I know all three of us have experienced this, where you walk in, you get the call LOI has already done, you get the loi and you look at it and the first thing you see is, you know what? I don’t see. And you know, how, in your experience on the table here, what do you do for the client now when the loi when I guess the train is left the building, right? The chip is left port, How do you unwind it? Or how do you then, I guess, amend to get the considerations that you want in for the client to make the deal balanced? Or to a point where you, where you feel like, okay, we’re, we’re getting the things we need to get in.

George Mueller (08:09):
I, you know, depending on the deal dynamics, that is how friendly the parties are, how well acquainted is there prior affiliation or do, do they currently have some sort of a relationship either professionally or are they known, mutually known, or is it just blind party that they, hey, this looks like a good acquisition target cuz it fits in kind of to my scope of who I’m trying to buy, right? Mm-Hmm. my growth plan, if you will. I, I think what you try to do is either if it’s vague and you want it in there, well, you know, then you call all the other deal terms you want enter there custom customary or on market or you suggest that there are things that are in definitive agreements and you try to get ’em in there as, oh well that’s what we typically get.

(08:53):
You know, you hit the, you get the ad is that you learn in law school is a terrible answer. Well, that’s what everyone does or that’s what we usually get, or that’s in the form, right? All these terrible things. Well you, I guess you, to the extent you can, the theater of advocacy for your client, you try to get them. I think that what you try to do early is identify deal breakers, things that are like terminal deficiencies. Things that could really go negatively against the client’s expectations about ultimate deal results, right? You try to warn them off early and say, Look, you are gonna have to do a price adjustment because you’re getting cleaned on this, You’re getting cleaned on that, you’re getting hosed on that. So you tell ’em early before invested cost or expectations become too high, maybe you tell ’em you need to back off the deal or you need to let the LOI expire and then get a better deal.

(09:41):
Which is a rare that doesn’t happen. But typically in this circumstance, sometimes you can get the clients to discuss among themselves cuz attorneys of a tendency to be too adversarial to let this happen too early in the deal. And I don’t, you know, it is, we do what we do for our clients, but sometimes you just gotta readjust deal expectations if the deal’s too bad or too one-sided you know, in one way or another. Maybe you, I don’t know what Rory has done in the past. I know I’ve tried to say, Well, look, my client wasn’t advised on this loi this thing is terminally deficient and you know, this price isn’t supported because the allocation of risk is totally off market. And because, you know, you’ve got these lockup deal terms, the rollover is way too high and we’re trying to cash out or whatever. Right? I mean, insert alternative deal, result of choice enough to try to reset transaction expectations.

Rory Bellina (10:34):
Yeah. I, something comes to mind. This was a transaction that I worked on about maybe three, four years ago. And it was after the LOI was executed and we had the air quotes kickoff call with, you know, our client, the buyers buyer buyers counsel, everyone who had the CPAs, everyone on the phone. And what I thought would be a, you know, a 20,

George Mueller (10:55):
You let those CPAs on the phone,

Rory Bellina (10:57):
, they were, they were invited what you would think would be a, a 20 minute talk. They did not talk much. They, they kind of listened in and they would chime in if they were asked to talk, but, okay. It was a, what was typically a, you know, a 20 minute call on, you know, here’s the overall structure, we’re gonna move forward with these documents here, we’re gonna talk about the data room, you know, which we’re gonna talk about in a later episode. You know, it turned into a two and a half hour call because the L LOI was so deficient that when we started to get, and, and it was, it was really good because the deal ended up closing and it, it took some time. But that, that kickoff call was where we really discussed the big things that weren’t in that l the L LOI that came to us too late where we weren’t a part of it.

(11:40):
And, you know, the attorneys were able to talk and discuss, Okay, well we’re thinking of structuring this way. Well, no, we wanted to structure it this way for tax implications. And so that, that first call really kind of made the deal as opposed to breaking the deal because we were able to move past some of those big points. So I think it’s, you know, it, it’s very helpful if, depending on what side you’re on, but the, but the, I’ll call it the opposing council, you know, if they’ve got the same goals in mind of we wanna work this deal, we want to get it closed. I mean, I think that’s, that’s everyone’s goal as long as it’s their client’s goal to, to get the deal to close. If you’ve got attorneys on the other side that are willing to work and not just dig in their feet and, you know, and, and put a, a halt to the deal if they don’t get what they want.

George Mueller (12:24):
Yeah. No heel digging is and you’ll learn it early, right. And the deal, people will reveal themselves very quickly in terms of how that goes. That can really kind of set the culture for how our deal goes. I’ve noticed. And again, getting an opportunity to get that LOI in is

Conrad Meyer (12:45):
Very, it sounds like it’s a very important, you know, obviously very important part. Well, let me, lemme throw this at you now. So let’s, let’s throw a curve ball here. So what about NDAs, non-disclosure agreements? So do they work synonymous George, within the context of an loi? Do you find them or is it, is it after? Before

George Mueller (13:02):
It’s, you know, typically it’s one of the first things that you’ll see exchanged on paper between parties who have expressed a mutual interest or received an interest and decided to entertain it. Just because, you know, letter of intent, if you keep in mind what information informs a letter of intent, we just talked about a laundry list of things. Sure, sure. And so those things you’re talking about the identity of the seller or sellers, what they’re selling, is it assets or equity rough estimate of price, or we have price parameters and then we have a bunch of deal terms. And usually there’s some allocation of risk things, there’s some employee retention and what’s gonna go on with that? So imagine the amount of information it takes to inform a successfully drafted loi. So we know a lot of information has been exchanged by the parties.

(13:49):
So in order to facilitate that, certainly I think in nda, non-disclosure confidentiality, and then I can get into, depending on the nature of the business, non duplication, non, you know, it looks like a kind of an IP protection agreement nest then a confidentiality, it’s one of the first things you do to get it. So that a level, and even then on the level of information that’s shared at that level, pre LOI is usually kind of high level. It’s not too granular, it’s certainly not proprietary in usually, typically. But we, you have to have that in place in order if that information be shared to facilitate the

Rory Bellina (14:25):
Language. Yeah. And I think it’s probably one of the most important things from the beginning because like we talk about if we’re thinking of this chronologically with your LOI and then the nda, and we’ll call it the kickoff call, but you know, after that it’s when you start to get the different, you know, parties, their attorneys or their accountants looking in things and you, you start to go into that go or no go analysis where, okay, we’ve agreed to basic terms on, you know, closing price, how we’re gonna structure it. We had our kickoff call, we kind of agree whether this is gonna be assets stock, are we gonna have to do some pre pre-closing mergers acquisitions for tax reasons? But then once we move past that, okay, now we need to start looking at, you know, what’s behind the curtain and really see is this a go or no-go.

(15:07):
And that’s when you get, depending on the type of the deal, the deal that comes to mind, the the firm kind of siloed it all off. And so they had their, their tax attorneys looking at the one side, they had their healthcare team looking at the, the healthcare side, their HR people looking at all their employee things. I mean, that’s when you really start to get down into the weeds of, okay, we need to look at this and make sure that this deal is really worth what we said we thought it would be worth in, in the loi and, and, and spend some time there. And that’s probably the last big barrier I would say you face. Mm-Hmm. , once you get past that, that go or no go analysis, you know, some other things definitely will come up as you get into disclosures. But I think that’s where a lot of time is spent deciding, Okay, were we close on our mark for the purchase price? Do we still want to purchase this asset or, or, you know, acquire this,

Conrad Meyer (15:58):
Well, let, let

George Mueller (15:59):
Negating issues of suitability and and is the price, are we seeing things that prove out the price or any big limiters? I will make a bad joke on be on behalf or at the, at the, the expense of some healthcare attorneys. He talked about how the different anthills of the firm, the different specialties get called in. Keep in mind for buyers counsel, typically the healthcare regulatory people don’t get wheeled out until

Conrad Meyer (16:23):
The last

George Mueller (16:24):
Of the deal. So they can come running and screaming that a non-compliance issue has suddenly changed. We full disclosure and it’s gonna cost a ton of money and all sorts of things are

Conrad Meyer (16:38):
Gonna happen. That was a deal right there. Didn’t you know, that ,

George Mueller (16:40):
That was it. And so that’s literally the call you get, right? It’s like, well, healthcare councils find a word non-compliant with some, it’s something that is either gray or potentially completely in or it’s something that could be handled, like it’s very identifiable and, and that can be bottled up and dealt with legally and inappropriately.

Conrad Meyer (17:00):
We, we call that the difficulty bomb. I mean, that’s, that’s something that healthcare attorneys are very good at doing. They’re very good at saying no, it’s hard to say yes. And healthcare

George Mueller (17:09):
Attorneys are, and look, compliance people, typically when we do compliance work, we’re, we’re mindful of what could be right. Interpreted or what could be determined because, you know, that that is kind of the nature of people on the other end of those regulatory issues.

Conrad Meyer (17:25):
Well, before we get to the, well, but

George Mueller (17:27):
I just wanna say they invariably most other specialties get involved early. Yeah. Self for healthcare regulatory people, they’re always in late. That’s true. And they always have all the bad news. But getting back to the confidentiality, I’m sorry I had to say this.

Conrad Meyer (17:39):
No, well that’s, and look, I, I get that and, and look, we’re gonna, we’re gonna get to the, to the due diligence and we’re gonna get to the actual documentation and closing. So, but, but first of all, let me ask you this. So I just say, lemme just say this. Here’s the quote I’m gonna give you. All NDAs are created equally. Would you agree with that or not?

George Mueller (17:56):
No, I think they all have similar titles. They all have a similar structure. You know, you typically get the big you get the big definition of what information is, or confidential information. And then you’ll have the, i, you know, the identification of it, what it includes, and then the duties to protect, and then the manners in which you have to prove that if you know, things don’t consummate what you do with that. Like right. Sign an affidavit saying you’ve destroyed it, show some computer information and you’ve deleted it, you’ve sent it all back, you don’t retain any of it et cetera, et cetera. Sometimes it’s an exception where they want to retain one copy for some compliance purposes, depending on the nature of the deal. But no, they’re, they vary. And you know, we also seen talking about what you put in one of these, we’ve seen some people try to put exclusivity terms and lockup terms in their NDAs as a precursor to the loi. They say, Well, while we’re exchanging information, you agree not to entertain any other candidates, right? And so that, that’s pretty aggressive. And, and we try to avoid those being imposed on our

Conrad Meyer (19:01):
Clients. And so, and when the other council says, Rory, either one of you when the other council says, Hey guys, I have my nda. It’s a, it is really kind of simple, you know, couple of pages here, I’m gonna send it to you. Not a big deal. It’s a form nda, Right? Does the does the hair go up on your neck or the antenna wave and say, Well, let’s just check it out first, or what, what’s typical?

Rory Bellina (19:23):
I mean, I think it’s always good to check it out and, and see what’s in there. I mean, I would never just tell someone to sign off on anything without, you know, putting eyes on it. Like George said, I think there’s common language, you know, defining what’s information, defining what’s confidential information, defining what is in, in the public, because there’s exceptions if you know you’re subpoenaed for information or what’s public information, indemnification language. I mean, I think there’s some key points that you definitely want to see in an nda. And, and like George said, that exclusivity provision where, you know, during the term of this LOI or whatever it may, that that we’re not gonna, you know, solicit other buyers or sellers of the company. So I think there’s definitely big important things. And, and the good thing, I guess, you know, with the progression of time and technology is that, you know, when you’re going through this go or no go process, these, these data rooms are really sophisticated and they’re really secure and they really, depending on what side you are and if you set it up or not, they allow you to see, you know, who opened the file, what time they opened it, how long did they look at it, did they attempt to print it, did they attempt to download it?

(20:30):
I mean, there’s some really, you know, big

Conrad Meyer (20:32):
Sophisticated protection audit type of work. Right,

Rory Bellina (20:35):
Right, right. I mean, you could even turn off features where documents can only be viewed, they can’t be downloaded, they can’t be printed. So all those things really do, Right. The software out there really does help because, you know, we’re, we’re not getting into the disclosure and due diligence part yet, but when you’re in that go or no go analysis and everything’s confidential, you know, the data room and these data room companies can really help.

Conrad Meyer (20:58):
Well, let’s go back. So for the, for the listeners who’ve never seen or maybe read an NDA before, George, I think you touched on it a little bit about what’s considered confidential, talked about a few sections. Yeah. What, what, what would you normally see in, in nda aside from the fact of here’s what’s confidential?

George Mueller (21:18):
Yeah, so, and depending on the industry or you know’s healthcare deal talk and things get a little different. And then it gets different as to whether or not this is kind of a, someone entering into an industry or whether it’s like a vertical integration from who would be a buyer or seller or consumer user or solicitor of the services involved, or whether or not they’re competitors, right? Because, and if you’re making widgets and you have super secret recipes and processes, those things usually don’t even get disclosed until the very end, if at all. And they’re heavily protected in terms of you can’t reverse engineer, you can’t duplicate and you can’t compete in a scenario with healthcare, I think a lot of the information ends up being either protected in terms of the terms of agreements, right? And, and or terms of your employee agreements or maybe other proprietary processes within the healthcare sphere.

(22:12):
I understand that. So it’s like what’s proprietary, you know, people have some business processes, some billing processes, right? And some other things that they believe are proprietary. So those carve outs that go usually A through E or A through F in terms of what isn’t protected information or proprietary, I think that gets a little gray because whether or not something is out there, whether or not it’s independently learned or whether or not it’s something they’re already doing, but they do a little different, I think that can get gray. And concerning in healthcare transactions, obviously the sensitivity of some of the information, usually it’s what provided in an anonymous or redacted scenario where things can be identified for purposes of determining patient populations or payor mix and whatnot. I think there are ways that that stuff typically gets provided to where you don’t have someone’s social security number and or name or, or air quotes PHI out there. Sure.

Conrad Meyer (23:04):
Right. And I think

George Mueller (23:05):
Go,

Rory Bellina (23:06):
I don’t know, I’m sorry, go ahead.

George Mueller (23:07):
No, I was was gonna say, so with that, I think defining confidential is important and the, the duty to protect and then, or, you know, the exceptions about whether or not,

Conrad Meyer (23:16):
What about who could see it?

George Mueller (23:17):
Well,

Conrad Meyer (23:18):
It is that, is that typically enumerated

George Mueller (23:20):
Out? It’s gonna be, it’s gonna be certain people, you can make it as fine and, and as tight as you want. Almost certainly as you’ve said, who’s on the, on the LOI calls to be the same people who get to see that stuff, which will be attorneys and CPAs and other advisors employees. They probably don’t want it to be widely published. And of course, the duty to indemnify if this stuff gets out right. For one reason or another. Yeah. You have a, a, a rogue employee that goes and posts a bunch of stuff on the internet. I mean, a parade of horrors doesn’t usually happen, but you have to consider the scenario. And so if you’re someone who’s disclosing, you know mm-hmm. , some of these scenarios, you have to also contemplate who’s doing the disclosing. Is it mutual or is it kind of heavily one side?

Conrad Meyer (24:01):
You talking about the indemnification? Yeah.

George Mueller (24:04):
Then who’s gonna, who’s more likely to access that indemnification in those protections? And depending on who you represent, you have to kind of, you know, curate those accordingly.

Rory Bellina (24:12):
You have to, And yeah, and I was gonna say, this is not, this will probably not give much comfort, but I think there’s a level of trust a little bit in the, the company that’s either acquiring you or that you know, that you’re, you’re selling. Because knock on wood, I haven’t been a part of a deal that didn’t go through that didn’t make it to the finish line. But you’re disclosing , you’re disclosing a, a lot of information. You’re disclosing, you know, in, you know, when you’re putting all that stuff in the NA room, you’re giving out your patient lists, your patient populations, you know, revenue, you’re disclosing your payer contracts, which are, you know, those are sacred because everyone’s got different rates. Everyone’s

George Mueller (24:48):
Got

Rory Bellina (24:49):
A different deal, everyone’s got a different deal. You know, how, how much are you paying for this? You’re disclosing your vendor rates, right? How much you’re buying your sutures for, and I mean, you’re, you’re disclosing a lot of information and could the deal blow up? Absolutely. And

George Mueller (25:03):
You can’t hit rewind on it. Correct. You can tell ’em to hit delete, you can tell ’em to return to sender. Correct. You can tell them to guarantee that it’s not gonna go anywhere

Conrad Meyer (25:11):
Out there.

George Mueller (25:12):
But

Conrad Meyer (25:12):
That, But all that being said, though, they

Rory Bellina (25:14):
Know, they know and they have it. So there’s a little bit of, of a, of a gut trust of do you trust that this is going to go through? Are you okay with, you know, your, the acquiring company, your competitor, maybe knowing what your, what your blue cross rate is, or what you’re

George Mueller (25:29):
Paying the push in on that is big. That’s, and that’s really, that’s well stated, Roy. It’s ex it’s a, it is a moment where you’re like, Man,

Conrad Meyer (25:36):
Okay, here we go. Hey guys, I’m all for the trust tree, but let me just ask the question. If it’s not in writing, it doesn’t happen. So that, that’s sort of the typical mantra that all have followed. Right? Sure. My question, and, and to you Rory, is if on that note, that trust you’re talking about, I mean, would it be better to actually enumerate in the NDA what those disclosures are and who they’re supposed to go to and it’s limitations? I mean, wouldn’t it be ni would, does that, do you see that typically?

Rory Bellina (26:05):
I think you could do that. I don’t, I haven’t seen that where it’s, you know, disclosed down that much. I think it’s, it’s nondisclosures are typically between the, the, the buying entity and the selling entity. And it kind of covers representatives. Like, like George mentioned, the attorneys, the advisors, the accounts. I don’t think it’s detailed down into who can or can’t see this. I think that that might be

Conrad Meyer (26:27):
What about the relief file, though? Like the courts court ordered, court ordered issue, George, or like what about that?

George Mueller (26:33):
Typically some of the language will imply that anyone who’s not under the tent of the entity, the disclose, you know, know they disclose either recipient of the information, Right. Has to have, has to impute to them or get an agreement or get it in writing that any other advisor has that duty to

Conrad Meyer (26:51):
Keep that, that they still fall under that nda

George Mueller (26:54):
It, that they agree to abide by the terms right.

Conrad Meyer (26:56):
Of the nda. Got it.

George Mueller (26:57):
Okay. And so the company ends up standing behind the other, you know, their, their representatives being disclosed, they stand behind them and in performing that. And, and so, so your point about what happens if it’s court ordered to disclose some information,

Conrad Meyer (27:12):
I mean, but is there, is there some sort of a, a relief al that says, Well hey, if you order by the court or if it’s required by law, that’s sort of a typical

George Mueller (27:20):
Gotta give. If, if that does happen. If you can imagine a scenario where I’m a seller and I disclosed to a buyer, here’s all my information and then, right third party X comes in and says we have a corridor or something to get all your documents either and it gets swept up in something that has nothing to do with you or it’s specific to the deal for whatever reason. I think the answer is typically the, the, I don’t wanna say boiler plate, but typically what you’d like to see in there is prompt notice and the agreement to fight it or oppose it and or give us the opportunity to fight or oppose it, right? Sure. And then you do that, you’ve done kind of all, you can

Conrad Meyer (27:58):
Just some sort of a temporary restraining order or some tro or junction

George Mueller (28:02):
You, you’re allowed to apply for one. You either tell ’em when I say, you know, protect against it or fight it, I would say you certainly try to, you block the order or give us an opportunity to participate Sure. In block the order. Sure. And or put up, put up your kind of best defense if you don’t want it out there.

Conrad Meyer (28:18):
Got

George Mueller (28:18):
It. If it’s an issue or sometimes it’s just cheaper to say, Okay, you can go ahead and have it. But,

Rory Bellina (28:22):
And the next, you know, But no, we discussed the next episode, we’re gonna focus more on the data room and the disclosure schedules cuz that’ll take up a whole episode. But, you know, one thing that I

George Mueller (28:31):
Just wanted to, in an ant hill of associates. Yes,

Rory Bellina (28:34):
Yes. That’s right. One thing I wanted to talk about while we had everyone in here is you’re going through that go or no go analysis and you start seeing things and it all goes back to that purchase price on the loi. And let’s say that we are representing seller and buyers council starts to go through documents and says, Wait a second, these numbers don’t match up with what you told us they looked like when we had that steak dinner one night. So, you know, George, what have you seen when you’re in that you’re not, you’re not really in great question. You’re not really in the weeds of negotiating the, the asset purchase agreement or the, the MI or whatever it may be based on the deal. But you’re still in that go or no go before you spend a lot of time, money and resources and buyers council calls you and says, These books aren’t as great as my client thought they were. We’re gonna have to adjust down that LOI price.

George Mueller (29:26):
Yeah. You know, so a a couple of instances anecdotally leap into mind and certainly a couple of things happen with just background with covid. A lot of things have really taken a dip and gone into a valley and are kind of resurging out. Some others on the other hand, like if you were in labs or testing or something, have really just shot up. Right? And so the idea that you’d be selling at a time where you’re at an all time high with very steep growth is suggested above, you know, questioning long term sustainability of that type of value as a basis for determining a purchase price. Sure. And so I think the, the quick answer is we’ve seen some where you’ve had some kind of anomalous years and you look at it and you try to get an adjuster in there. Like you try to build in an adjustment where we’ll pay x and then that’s when getting into the terms of the deal later, the earn out is gonna be more weighted heavily so that it trues up or you don’t get caught overpaying for anomalous performance on the other end of it if you have historicals.

(30:36):
But then someone says, Oh, you know, these are all the ad backs that’s we’re used and you kind of take their word for it. So in the little price recipe, we have X ebida X multiple for total enterprise value and we’re gonna buy this percentage, you know, maybe it’s 80, maybe it’s 50, you know, whatever strategically works for the deal. And then you start looking at the tax returns and the cash basis financial statements and you’re trying to do your ad backs and get there and you can’t get to their ebitda, right? You don’t know where is it, where are the adjustments, where are these normalizations that are supposed to give us this quality of earnings that proves up our price? And the answer is, you start to manage those expectations. You start to ask I can see the emails, you, you, you, the cpa, preferably cpa cause they’re less threatening, right?

(31:23):
You have them CPA to CPA or CPA to intended party ask, Look, we need this information. Where is this information? Or you can have it directly if you just wanna have lawyer to lawyer depending on scenarios and privilege matters and whatnot. But transactionally you try to tailor your questions and inquiries to approve up their price assumptions. And that’s kind of sending the message that, hey, you know, we’re looking at this or hey, we’re not seeing it. And then how you communicate that I think starts to manage seller expectations if you represent the buyer. And it’s the seller’s opportunity to prove that up to say, Oh no, look, this is why and this is where we get it and you know, it proves up. So pay us our price.

Conrad Meyer (32:02):
And, and I think we can, when we start going into the due diligence, we can get into that. But for purposes of, of of, because this cause what we’re doing here, we’re doing this multi here,

George Mueller (32:11):
You need it in the let you need to address to the contract in the loi of intent rather than having stuck on a price and the ability to modify it. Right. cuz you may, you know, probably get some tax returns of financial statements in the initial data dump before the loi mm-hmm. . But there can be other things that inform that you may not get to until a definitive agreement is there. So, but no, it’s, it, you know, that content in the LOI is very important. That’s why we, you know, mentioned it earlier. Cause that price thing, you’ve gotta have the flexibility to where we have a concept of value where we’re gonna prove it up. And and then, you know, keep in mind in loi, just kinda switching gears a little bit, usually binding and non-binding, I was about to say that it’s a big, it’s a big deal about and conceptualizing what will apply, what won’t apply, what will survive versus kind of scratching your head about merger doctrine and having the LOI terms be merged into a definitive agreement, but yet the NDA is still applying the entire time.

(33:11):
You have to back reference those. You have to make sure that you’re, have some continuity of what the legal agreement is between the parties from the NDA to the LOI into the definitive agreement. But here, the binding and non-binding components and, and what happens avoiding the exclusivity being jammed in the nda. Certainly in the loi that’s usually where we find our kind of sword dangling over our head. We’ve had some come in where you see they say, Oh well if you don’t close and you pay all our costs. And it’s like, well, for any reason. And then, so you either wanna strike that or you want, you know, strike it entirely. Or you want to very narrowly define very narrowly define and what circumstances would I ever be responsible for the, I’m a seller for the buyer’s legal cost for un consummated deal. And I guess if you get to a certain point, you walk off in a huff for no reason at all, something that is really kind of off market or poor form, then maybe, but otherwise it’s huge leverage for the buyer and you wanna avoid that.

(34:13):
Right? But some people insist not, they try to get it and they, they’ll tell you, Well, you know, we’re just doing the best for our clients. Like yeah, you’re trying to create extraordinary leverage, but multiple levers, multiple buttons inside of the cellis that can really create deal leverage downstream materiality risks materiality scrapes, all of things that go into what happens with those boiler plate reps and warranties. The posture of them just informing indemnifications in the definitive agreement. Like who’s gonna do indem? Are they gonna be personal? Are they gonna be parra, are they gonna be joint in several amongst all sellers? Are they gonna be capped? Is the cap gonna be the purchase price, 10% of the purchase price? Is there gonna be a hold back? How long’s that hold back gonna be? Is it staged out at 12 months? Did we get the typical 18 months?

(35:03):
How fast, how soon? Cuz reading to the end of the book a little bit after the deal’s closed, the posture changes a whole lot in terms of examining the escrow, making claims for whole backs and you know, whatever, you know, if there litigation matters going on, of course those things have tends to linger and get addressed, but things change a lot, right? Operationally. And so you, what we always try to advise is you’ll never have as much leverage as you do immediately prior to signing whatever doc that loi. You’ll never have as much leverage as you then and get into the definitive agreement. Yeah. It, it, it, it applies to That’s a great point.

Rory Bellina (35:43):
I’ve never seen a deal close for more than the price in the loi. The price only can go down.

George Mueller (35:49):
Well, we’ve got, we gotta, if we’re representing a seller, we gotta drive up that ebida. But, you know, hopefully

Conrad Meyer (35:56):
Hopefully do, I guess I guess the, the point of all that, right to both of your points is get council involved before, Right? You do the LOI earlier, the better, earlier the better. And, and don’t be just simp simply because you’re a seasoned entrepreneur doesn’t mean you know how to, I guess to your point, make a pizza . No. Right? Yeah. I mean, does it, I mean, because you, because all of the issues that both of you have addressed today, very complex, very complex. It’s very fluid. And if you don’t get ’em,

George Mueller (36:30):
They’re deal specific and they can be right. Industry specific in terms of, you know, how value typically is determined in a healthcare, in a healthcare setting, and then some of the regulatory issues that you have to deal with in the healthcare setting. It, it, and the assignability of contracts and the healthcare setting, all that can affect price. And to the extent you can, and again, it depends on posture by our seller to the extent you can address them and get them done in the agreement without the full blown language. But to get the concept decided in your favor, you’re covering a lot of ground very efficiently mm-hmm. and you’re getting rid of things that be, can become impass for a deal to close. And again, it’s a bad joke about our healthcare regulatory council, some of whom or present in the room, but it’s not on y’all , if you can get a kind of a drop dead date for certain issues to get raised, right, preferably earlier, the better.

(37:29):
Then you can avoid again, one of those buyer driven leverage scenarios where everything’s pretty much done, it’s all teed up. And then, oh golly, gee, this rat in the wood pile, we just found this, You have any idea what we’re gonna have to do? Hit the brakes full stop. Well, that, that’s bad for deal dynamics. And as a seller, it has a tendency to, to really put you in a leverage scenario where you can’t really say, Well, I’m not doing that. We’re not gonna do this. A practical risk of this is nominal, what are we doing here? And the buyer’s sitting there pointing to some regulation and then some discussion paper, and then some friend that they call at some agency that gave them the unofficial interp on what should be done to remediate the

Conrad Meyer (38:14):
Issue. I think we’ve all seen that.

George Mueller (38:15):
And if, if it’s discovered in the first month of due diligence, it’s fine. If it’s discovered 10 days before the deal closes, it’s, you know, it’s bad for your buyer. Like, guys should have figured this out earlier, but say, Oh, we can’t unring the bell. And well, you know, avoiding that by current trying to create a drop dead date for when these things get raised, kind of not dramatically different from what you might see in a real estate purchase agreement with respect to title defects, Right? You have a period of time to get those done. It’s a little more difficult to try to impose that sort of deadline in, in a, in an asset deal or an equity deal for a healthcare deal. But it’s, I think it’s an important thing to try to get done. If you can, if you can get that address, you can pull, you can save yourself a lot of aspirin.

Conrad Meyer (39:04):
Well, I think, I think what we’re gonna do here, because the, we’ll call this the out of the legal deal. We’re gonna make this a, a multi-part series. I think there’s too much information to go over in a single podcast. So it’s,

George Mueller (39:16):
It’s fun discussion

Conrad Meyer (39:17):
Point. It is a lot of fun discussion. I think, I think listeners really will, will benefit a lot from getting some of this background information. So, you know George, you you should be a regular here anyway, so we’re gonna, we’re definitely gonna have George back. Rory, wouldn’t you agree? I think George needs to come back and shed some insight on additional deal issues.

George Mueller (39:36):
I, it’s, it’s a short walk to the studio.

Rory Bellina (39:39):
We’ve gotta close out this series. The next the next episode will focus on data room disclosure schedules, which will definitely take up a full

Conrad Meyer (39:47):
Episode. That will definitely take up a full episode. So we look forward to

George Mueller (39:50):
That and we’re gonna need a bigger room to invite all the associates in to help with it.

Conrad Meyer (39:53):
There’s a lot of associates that go into that. Absolutely. Well, gentlemen, I wanna tell you thank you very much. It’s been an honor and a pleasure working with you. Thank you for having me and everyone who has listened to the show, we really appreciate the the interest in the podcast. Go ahead and, and click that, that five star rating for us if you don’t mind. And if you like what you hear or you want to comment or you have any request with respect to future episodes, please go ahead and send us an email. I think it’s a podcasts@chehardy.com is the email address. And until that time, we look forward to seeing you on the next episode. Have a great weekend. Enjoy.

Intro/Outro (40:31):
Thanks for listening to this episode of Health Law Talk, presented by Chehardy Sherman Williams. Please be sure to subscribe to our channel, Make sure to give us that five star rating and share with your friends. Chehardy Sherman Williams is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does this podcast establish an attorney client relationship. Reference to any specific product or entity does not count as an endorsement or recommendation by Chehardy Sherman Williams. The views expressed by guests on the show are their own, in their appearance, does not imply an endorsement of them or their entity that they represent. Remember, please consult an attorney for your specific legal issues.