COVID-19 has had a material impact on health care consolidation transactions. There is still significant deal flow, but buyers are conducting more fulsome regulatory diligence, including a billing and coding audit that may include internal validation through the application of analytics and significant COVID-19-related human resources and Occupational Safety and Health Administration (OSHA) review.
In addition to the regulatory and legal diligence, buyers are doing a deep dive into financial diligence and the impact of COVID-19 on 2020 and 2021 performance. A gap in valuation between buyer and seller is increasingly common, and earnouts are regularly being used to bridge the gap. Use of earnouts in health care transactions presents additional regulatory issues that parties must consider in tailoring the consideration for a transaction.
In this program, we also discuss addressing COVID-19 when drafting material adverse effect (MAE) and material adverse change (MAC) clauses. Lastly, many sellers were eligible and did receive Paycheck Protection Program (PPP) loans. The Small Business Administration (SBA) has issued guidance that allows for closing without SBA approval provided certain requirements are met. Parties must comply with these requirements or risk forfeiting the right to forgiveness on a PPP loan.
We expect a busy 2021 in the health care consolidation space and will continue to address these and other pandemic-related issues.