Define the Following Mergers and Acquisitions Due Diligence Terms Flashcards

Client name, location and profile: Montefiore Medical Center, Bronx, NY, an expanding regional AMC based health system with notable population health expertiseEngagement description: Due diligence and financial modeling, in support of the system’s minority investment in Crystal Run, a 300+ physician, multi-site, diversified multi-specialty group with ancillary services, real estate holdings, a licensed Medicare health plan and emerging pop health infrastructureThe Veralon team, Dan, Bob and Ben, collaborated with the deal team, i-bankers for Montefiore (Jefferies) and Crystal Run (Raymond James), Monte counsel (Sheppard Mullin, Jay Herzog and team), Milliman, and numerous client SMEs from finance, legal, risk contracting MSO, etc.Client Challenge/Problem

• Parties needed to fully understand the Crystal Run financial picture

· Historical financials needed to be restated, to reflect the post-transaction structure which included the creation of an MSO which would hold all the Crystal Run management and administrative infrastructure and capability· These restated baseline financials needed to be vetted by the parties and agreed upon as basis for prospective financials, and ultimately Jefferies valuation model· Growth assumptions, notably in the # of physicians – the key driver for Crystal Run revenue growth, needed to be developed with supporting rationaleOur solution

• Created the baseline, restating the historical financials

· Weighed in on all assumptions re prospective financials· Detailed evaluation of physician growth model· Team participant on deal structure discussions and negotiations· Supported Jefferies with valuation model inputs· Key team member in successful transaction closing, including Monte’s $90M investment of cash and in-kind contribution in the newly established MSO – now effectively a JV between Monte and the CR shareholders

Client name, location and profile: RWJBarnabas Health, NJ’s largest integrated health system, dedicated to research, education, training, and high-quality health care; also the State of NJ’s largest private employer.Engagement description: Veralon was engaged to complete community need assessments for 11 RWJBH hospitals. This involved analysis of supply vs. pop-based demand for physicians, evaluation of recruitment strategies and approaches to be used system-wide, and specific to each hospital, recommendations for improved approaches and models for alignment, and annual recruitment targets over a 5-year horizon to support hospital and system growth strategies. The Veralon team, Craig, Bob, Rudd, and JB collaborated with RWJBH leadership and reviewed interim and final recommendations with administrative leadership of individual hospitals and the health system.Client Challenge/Problem

• Medical staff development planning in the past was siloed and not coordinated among system hospitals; this planning process needed to address needs at hospital-specific level, as well as the regional and system levels.

· RWJBH market position declined for certain hospitals as competitor recruitment/retention strategies were more proactive and forward-thinking; competitors also developed larger, more comprehensive networks of employed physicians· Recruitment targets, by hospital and region, needed to be coordinated and aligned between and among hospitals (particularly for specialist physicians that could serve larger geographic areas/segments of the population)Our recommendations/solutions

• Focus on primary care recruitment, not just as a source of volume but also as leaders of RWJBH “medical neighborhoods”
• Systematic, proactive process for alignment, with common portfolio of models and regular evaluation of performance of alignment models and approaches
• Focus on employed physician practice experience
• Develop referral expectations and monitoring for employed physicians; identify reasons for referral leakage into controllable and non-controllable concerns/factors
• Develop implementation plan to address recruitment targets and strategic priorities

• Targets by region and hospital
• Action plan including timing, responsibility, and estimated costs
• Operationalize recommendations by campus/region

Client Name, Location and Profile: Dignity Health Greater Sacramento Service Area (GSSA). The GSSA operates 6 hospitals. Dignity Health is merging with Catholic Health Initiatives (CHI) to become CommonSpirit Health, operating nearly 140 hospitals in 16 states, including 30 hospitals in CAEngagement Description: Completed detailed market analysis and program planning for a potential big box ambulatory care center. Completed prospective financial analysis, estimating capital requirements, operating costs, and net margin, accounting for physician practice subsidies.Veralon Team: Mark Dubow, Bob Hill and Jason WilliamsonClient Challenge/Problem:

• Dignity GSSA leaders determined current local hospital had to be replaced; associated capital investment very large
• GSSA desired to retain a presence in the NW portion of the service area
• 5 hospital replacement scenarios were considered. The most attractive of the scenarios required that Dignity have an ambulatory care presence in Natomas that would act as an entry point and referral source
• A decision was made to consider a 6th option in which existing hospital was replaced by a big box ambulatory care center only and that facility would be in Natomas

Veralon Solution:

• The detailed analysis of the big box ambulatory care option revealed that despite the potential positive market impacts, there would be significant negative financial impacts on Dignity’s overall position in the GSSA.
• Dignity GSSA chose not to pursue the ambulatory care center and instead approved construction of a 60-bed replacement hospital (Option 1) as recommended by Veralon.

Client Name, Location and Profile: University of California, Riverside (UCR), School of Medicine (SOM). This new SOM, located in a seriously underserved population, just graduated its first class. The initial focus is on primary care and specialties that are in short supply, including psychiatry and Ob/Gyn.Engagement Description:

• Determine most effective composition of clinical services to be provided in the proposed building
• Project the utilization, resource needs, space needs, and financial impact of the clinical services and to prepare an implementation plan

Veralon Team: Mark Dubow, Carol Davis, Jason Williamson, Danielle Bangs, Bob HillClient Challenge/Problem:

• The UCR SOM did not have its own hospital. It operated several small ambulatory care sites in the County that were already capacity constrained. The SOM desired to establish a new big box ambulatory care center to expand access, training opportunities, and clinical capacity
• The student health clinic for UCR was identified as undersized. It had been proposed that a new ambulatory care center could be shared by the SOM and student health services
• UCR owned land adjacent to the campus and planned to lease it to a developer that would construct an ambulatory care center which would be leased back to and operated by the SOM and UCR. The SOM and UCR were seeking an objective analysis

Veralon Solution:

• Veralon recommended a 141,000 square foot 4 floor building (to include one floor for student health, multispecialty clinic space, urgent care, Imaging, 4 ORs and 2 endoscopy rooms)
• Recommended composition of services and clinical resources, implementation plan and financial projections were approved by SOM and UCR. The client now seeking funding to move ahead.

Client Name, Location and Profile: Summit Health (independent at the time of the engagement, now part of WellSpan). Full-service two hospital system (Chambersburg and Waynesboro PA) surrounded by larger (and growing) competitorsEngagement Description: Environmental assessment, ambulatory strategic planning, volume projections (IP and OP) and master facility planning. Evaluated and developed ambulatory and physician network strategies to address regional and service line specific needs and opportunities.Veralon Team: Craig Holm, Sean Looby, Scott Stuecher, Laura Zacchigna, Ross Shuster, and Domenic Pesce (independent consultant) collaborated with Summit’s C-suite, and finance and operations teamsClient Challenge/Problem:

• Client had varying levels of ambulatory infrastructure and investment in 5 identified strategic service regions. Competitor encroachment varied greatly by region
• Develop a tailored ambulatory strategies to meet unique needs of 5 strategic service regions
• Understand physical space requirements and capital investment related to ambulatory strategies
• Wanted to evaluate “out of the box” opportunities such as a micro-hospital and development of a large (100 acre) plot of land

Veralon Solution:

• Veralon created a novel ambulatory opportunity assessment model which incorporated key inputs related to geography, market share, strategic fit, growth potential, ease of implementation, financial considerations, and competitive environment.
• The outputs of model combined with additional evaluation led to 5 region specific strategies which outlined recommended incremental service offerings
• Other supplementary analyses included a micro-hospital feasibility study and five-year volume projections for all IP and OP services

Client name, location and profile: The Brooklyn Hospital Center, an independent 464-bed acute care community teaching hospital. The hospital serves as a “safety-net,” assuring care for its community regardless of an individual’s ability to pay. The hospital has 220+ physicians who serve on a full-time, part-time, or on-call basis and provide clinical, administrative, coverage, and teaching services in various settings.Engagement description: Conduct a comprehensive review of the hospital’s physician compensation program and policies and compensation resulting from these policies.

• Review all policies, procedures, template agreements, and comp programs and make recommendations and revisions;
• Conduct a limited review of all comp arrangements, identifying any potentially not compliant with current regulations;
• For all arrangements identified as potentially non-compliant based on the limited review, conduct FMV analyses.

The Veralon team—led by Dan and Rich and supported by (Zach G), Matt, Monica, Zein, and Jack —collaborated with in-house counsel and management team, and outside counsel (Margaret Davino of Fox Rothschild).Client challenge/problem:

• The large physician enterprise had diverse arrangements designed to fill identified needs for clinical, administrative, coverage, and teaching services. Yet this diversity was managed primarily with a one-size-fits-all approach and limited policy and compensation guidance;

· The hospital’s physician recruitment and compensation policies and procedures did not sufficiently cover the diversity of arrangements and had some missing elements commonly found in similar documents;· The hospital has limited financial resources leading to infrequent external compensation review, few in-house resources to manage the physician enterprise, a desire to review all physician arrangements at a cost lower than that typically associated with such a review· The hospital desired a comprehensive review of its policies, procedures, and practices with an eye toward improvement, minimal ongoing maintenance, and regulatory compliance;Our solution:

• Review and revise all comp and recruitment-related policies and procedures resulting in 5 policies and supporting tools clearly identifying scope of responsibility and authority;

· Revise the compensation model for full-time employment and provide policy documentation, illustrative calculations that can be shared with physicians, and contract language· Define scope and responsibility and authority for compensation steering committee and CEO, including clarification of arrangements for external review and board oversight;· Educate the executive team related to the most common features of physician agreements of various types, including the specifics required to define the services provided;

• Conducted limited review of all arrangements, identifying 8 arrangements for complete FMV analysis and opinion.

Client name, location and profile: Atlantic Health System, Morristown, NJ, a 6-hospital regional system with rehab, home care, and hospice; more than 600 community-based health care providers affiliated through Atlantic Medical Group.Engagement description: AHS identified several physical therapy (PT) practices it wanted to evaluate in relation to expanding the system’s rehab service line. Veralon provided transaction advisory and valuation services including:

• FMV of 6 PT practices in 2018
• Participation in conversations among AHS and target PT practices
• Challenge/ProblemOur SolutionEach PT practice was unique:
  • Each had unique characteristics and varying levels of sophistication.
  • Some were more profitable than others.
  • Some were in active growth mode, others were not.
  The relevance of each of the three valuation approaches (income, market, and cost) was dependent on the unique characteristics of each practice.Veralon selected and applied relevant approaches to each entity and provided clarity to AHS regarding the contrast between entities and FMV conclusions.Ambiguity about the specific deal:
  • This client wants to understand the FMV parameters prior to deal-making so as to be informed about their options and limitations.
  • In many cases, specific deal terms are unknown, or preliminary at the time Veralon prepares the initial valuation work.
  Veralon develops preliminary valuation calculations using stated ‘assumed’ deal terms.When helpful, Veralon provides a summary of different deal scenarios and related FMV indications to help the client understand the impact of differing deal terms.When an deal is agreed upon by client and target, Veralon updates the valuation to reflect the specific agreed-upon terms.In one instance, the PT group obtained its own valuation opinion to request a greater offer from the system.Veralon was able to explain the discrepancies and similarities between 2 FMV opinions and help the PTs understand the significance of negotiated deal terms such as post-transaction compensation and the PT’s retention of AR.On occasion, we were brought in after many conversations had occurred between the client and the provider, but no official action has been taken toward seeking a deal. In some cases, the providers might be disgruntled by the delay.We work directly with providers to collect information about their practice/business and are able to build trust by delivering results for discussion in a timely fashion through a transparent process. We have heard from some targets, how much they appreciated our role as an external consultant.

Client name, location and profile: UPMC Pinnacle, Harrisburg, PA, an 8-hospital regional health system. Recent acquisition of 3 CHS hospitals resulted in expansion into 3 new local markets, including York, PA where the system acquired York Memorial, a small community hospital undergoing a complete facility replacement and relocation.Engagement description: Provided transaction support in connection with acquisition of a key surgical practice located in the York, PA market, including:

• Practice assessment – 3 physician surgical practice (breast, colo-rectal, general)

· Business valuation – Leader Surgical Center, an affiliated ASC owned by 3 Leader physicians as well as ~5 other independent surgeons.· Development of post transaction physician compensation model and ongoing transaction supportClient Challenge/Problem

• Practice located in service area of new hospital
• Health system was in process of constructing new MOB and ASC where they would ultimately relocate the Leader practice and ASC
• Practice was historically aligned with Wellspan, a competing health system.
• Physician owners have high expectations regarding the value of their ASC
• Physician practice and ASC very successful and profitable; concern about impact in the market of physicians’ alignment with Pinnacle
• Practice and ASC located in a condominium complex where Wellspan was master owner. There were strict restrictions on ownership changes

Our Solution

• Developed a post transaction compensation model that was compliant that the physicians accepted
• Came up with a transaction structure consistent with FMV, and meet the business objectives of the parties given the real estate restrictions and the construction of Pinnacle’s new ASC

• Pinnacle will initially acquire a minority interest (so as not to change control) in the ASC
• When new ASC and MOB is constructed, Practice and ASC will be moved, and Pinnacle will acquire additional shares
• The Leader ASC will be rebranded with a Pinnacle name
• Leader physicians will retain apx 25% ownership and other independent physicians will be offered investment in ASC

• Led education sessions with Leader physicians to explain valuation results
• Worked with ASC development consultant to help prepare prospectus for new investors
• Team participant on deal structure discussions and negotiations

Client name, location and profile: Thomas Jefferson University Health Network, Philadelphia, PA, a growing health system with 14 hospital locations in PA and NJ. One area of excellence is cancer care and its NCI-designated Kimmel Cancer Center (one of only 70 NCI-designated centers in the US).Engagement description: Business Valuation, Physician Compensation FMV, and transaction support related to undefined potential transaction with Nazha Cancer Center (NCC), a 4 doc practice located in NJ. NCC is a full-service cancer center offering medical oncology (incl. infusion), radiation oncology (LINAC), and medical imaging (PET/CT). Dr. Nazha is the founder and current sole owner of NCC. Dr. Nazha also owns/operates related entities, including a real estate holding company (owns the buildings) and equipment leasing company (owns the LINAC and PET/CT). Dr. Nazha was contemplating transaction for succession planning purposes.The Veralon team consisted of Karin Kaplan, Rich Chasinoff, Denise Palencik, and Eric Brenner. We worked alongside the Jefferson team, including in house counsel, Chief Ambulatory Officer & VP for Business Affairs of Jefferson University Physicians, and service line leadersClient Challenge/Problem

• The Jefferson team was unfamiliar with transactions of this size/scope. They were also unsure if they wanted to acquire the entire business and employ the physicians or enter into a different type of arrangement (such as a lease of professional services)
• NCC included many components, each was being considered separately in various deal scenarios. Historical financial and operational information provided was on a consolidated basis.
• The main building of NCC was constructed to accommodate growth that has not transpired. Therefore, portions of the rented space was not being utilized. The business was paying for the unused space under its current facility lease with Dr. Nazha’s related entity.
• Dr. Nazha’s historical annual comp exceeded $1m, including clinical comp, business earnings, and related entity earnings. We had to determine reasonable clinical compensation on a go-forward basis and incorporate assumptions into income approach of the business valuation.

Our solution

• Participated in various meetings with Jefferson to define potential transaction scenarios, outlined the pros/cons with each, and the resulting financial implications
• Normalized all expenses to FMV, including facility rent and equipment rental from Dr. Nazha’s related entities. We excluded all unused space from our calculations under the hypothetical buyer concept (i.e., the hypothetical buyer would not pay for space he/she wouldn’t use)
• Utilized consolidated financial information to allocate revenue and expenses to each business component (Professional Services, Technical Services of Radiation Oncology and Medical Imaging)
• Relied on Cost Approach for Professional Services and Income Approach for Technical Services
• Calculated Dr. Nazha reasonable comp for clinical services using historical WRVUs and collections
• Met with and provided transaction advisory services to senior leadership of Kimmel Cancer Center to help with critical decision making and deal terms.

Client name, location and profile: MedStar Health, Columbia, MD. A 10-hospital system which includes an AMC (MedStar Georgetown), an urban level 1 trauma center (Washington Hospital Center), and community hospitals of varying size and complexity located in the Baltimore and Southern Maryland regions.Engagement description: Developed a compensation plan for ~100 employed orthopedic physicians in support of the system’s service line integration efforts. The Veralon team, Karin, Meg, Matt, and JB, worked with a steering committee comprised of system leadership, regional orthopedics chairs and administrators, to develop and implement the planClient Challenge/Problem

• Employed orthopedists were compensated based on different models which varied both in structure and compensation levels. The system had embarked on a system wide initiative to integrate key service lines and did not want compensation to be a barrier to integration
• Parties needed to fully understand the current compensation environment as a foundation of the planning process. Regional Chairs had different compensation philosophies as well as a certain level of skepticism regarding the process
• Through a work group process which lasted ~2 years, we developed and tested a series of models, one of which was finally adopted

• Data issues due to multiple sources
• Political sensitivities
• Simulating impact on each individual physician with a desire to mitigate negative impact
• Required senior level “arbitration” on key issues, i.e. do we pay for teaching

• After attempting to implement model without Veralon, legal and senior mgt brought us back in to assure that both regions were correctly implementing the model as developed

Our solution

• Facilitated discussions and many planning sessions with the key stakeholders
• Completed an environmental assessment of the current compensation situation which demonstrated the need to move towards a common platform

• Variables included being paid for call, teaching, high bases with low incentives and vice versa, administrative burdens and FTE definition

• With input on guiding principles, and our knowledge of the system, developed a variety of models for MedStar consideration
• Advised on best practices about models, implementation and compliance
• Developed all final documentation of model including templates for use by the contracting office
• Developed communication materials to assist management in communicating to each individual physician regarding impact of new model
• Key team member in successful implementation of the model

Client name, location and profile: Dignity Health, Greater Sacramento Service Area, CA. Independent and employed oncologists had been asking Dignity GSSA leadership to explore developing a cancer center in Folsom for a few years. In 2018, Chris Champlin (Regional Chief Strategy Officer) contacted Veralon to develop an “entrepreneurial” approach to development (low investment, fast market entry with a narrow service offering)Engagement description:

• Prepare business plan supporting development of proposed cancer center, including scope of clinical services and resources, integration with 2 existing cancer centers, identification of business risks and critical success factors
• Develop financial projections for initial 5 years of operation

Veralon Team: Mark Dubow, Meredith Inniger, Brian Hackman, Allie D’Innocenzo, Hayatt Ali, Kelvin PolancoClient Challenge/Problem

• In ~2015, an internally led financial feasibility analysis showed that a 3^rd cancer center in Folsom, CA was not financially feasible. Years later, oncologists requested this cancer center be re-evaluated based on population growth. Dignity Health was looking to better meet the needs of patients, expand oncology market share, and improve payer mix

Our solution

• Provided volume and financial projections under 3 scenarios
• Assessed business risk, business case, critical success factors, associated strategies for success
• Veralon proposed the following:
  • Utilize a fast to market approach for the center by using a modular design
  • Increase revenue opportunity as a hospital outpatient department vs freestanding center and reduce upfront capital costs by leasing a LINAC
  • Rely on imaging and lab services at nearby Mercy Hospital of Folsom and integrate with system resources for other ancillary and support services to reduce capital investment
  • Comprehensive strategies related to system integration, physician neutrality, referral network, patient volume growth, payer contracting, effective operations, and differentiation

Client name, location and profile: N/A (However, Dr. Zucker, who would be our subcontractor for this, performed this type of work for Palm Beach ACO (see below))Engagement description: ACO Optimization through development and implementation of a strategy that focuses on engaging PCPs to transform their practices. Includes a “Risk Readiness” assessment focusing on 7 areasClient Challenge/Problem

• Achieving savings in Medicare ACO programs in a small number of operational changes that turn around performance for the ACO, yielding positive ACO results and improve physician satisfaction.
• Hymin Zucker has 28 years of experience in Risk Managed Healthcare, as both a practicing PCP and medical administrator culminating in a multitude of core competencies

• From AUGUST 2012-AUGUST 2014, was CMO of Palm Beach ACO in Palm Springs, FL which initially had 22,000 Medicare beneficiaries and 105 PCPs and 90 specialists
• Earned largest shared savings, $19 million, of all physician owned ACOs for 2 years

Client name, location and profile: Montefiore Medical Center, Bronx, NY, an expanding regional AMC based health system with notable population health expertiseEngagement description: Due diligence and financial modeling, in support of the system’s minority investment in Crystal Run, a 300+ physician, multi-site, diversified multi-specialty group with ancillary services, real estate holdings, a licensed Medicare health plan and emerging pop health infrastructureThe Veralon team, Dan, Bob and Ben, collaborated with the deal team, i-bankers for Montefiore (Jefferies) and Crystal Run (Raymond James), Monte counsel (Sheppard Mullin, Jay Herzog and team), Milliman, and numerous client SMEs from finance, legal, risk contracting MSO, etc.Client Challenge/Problem

• Parties needed to fully understand the Crystal Run financial picture
• Historical financials needed to be restated, to reflect the post-transaction structure which included the creation of an MSO which would hold all the Crystal Run management and administrative infrastructure and capability
• These restated baseline financials needed to be vetted by the parties and agreed upon as the basis for prospective financials, and ultimately Jefferies valuation model
• Growth assumptions, notably in the number for physicians – the key driver for Crystal Run revenue growth, needed to be developed with supporting rationale

Our solution

• Created the baseline, restating the historical financials
• Weighed in on all assumptions re prospective financials
• Detailed evaluation of physician growth model
• Team participant on deal structure discussions and negotiations
• Supported Jefferies with valuation model inputs
• Key team member in successful transaction closing, including Monte’s $90M investment of cash and in-kind contribution in the newly established MSO – now effectively a JV between Monte and the CR shareholders

Client name, location and profile: Ingalls Health System, Harvey, IL; community health system (400+ bed hospital, four large multi-specialty outpatient locations) located in the suburbs south of ChicagoEngagement description: After several years of deteriorating financial performance, Ingalls’ leadership decided to explore the possibility of a significant affiliation with a larger partner. Veralon was engaged to first examine Ingalls’ ability to remain independent. When it was determined a partner was needed, Veralon was charged with establishing Ingalls’ priorities for an affiliation (i.e., must haves), creating an RFP, evaluating potential partners, and negotiating terms of an LOI with a select partner(s).The Veralon team: Alan, Scott, and Laura. The steering committee for the client was the board executive committee. Veralon interacted frequently with Ingalls’ leadership team and served as the primary facilitators for interactions with leaders at potential partner organizations.Client challenges/problem

• Ingalls had long history as successful, independent health system in Chicago’s suburbs; increasing financial challenges caused board to evaluate the need of an integrated partnership
• There were conflicting opinions among Ingalls’ board and leadership regarding the need for an affiliation; Ingalls required an objective, third party to evaluate their need for a scale partner
• Ingalls lacked organizational experience and resources to properly evaluate organization’s affiliation priorities and potential partners that would most optimally meet Ingalls’ needs

Our solution

• Evaluated Ingalls across more than a dozen dimensions, including financials, market position, physician alignment, etc. and determined Ingalls could not maintain success as an independent organization
• Facilitated internal discussions (board, executive management, medical staff) to gain consensus to proceed with affiliation exploration
• Worked with board to establish Ingalls’ must haves in an affiliation; these included partnering with an organization that had experience with population health management, maintained strong brand reputation in Ingalls’ service area, and could positively impact quality of care
• Based on the must haves, Veralon developed an RFP and identified a list of potential affiliation partners that would receive the RFP
• Evaluated numerous RFP responses, summarized the relative strengths and weaknesses, for the board’s review
• Helped select two preferred partners for negotiation of specific deal terms
• Facilitated numerous interactions with the potential partners and Ingalls, including formal presentations, visits to the partners’ care sites, and negotiation sessions
• Assisted legal counsel with the development of an LOI with the preferred partner
• Ingalls finalized its merger with University of Chicago Medicine in October of 2016

Client name, location and profile: UPMC Pinnacle (Pinnacle) serves a 10-county area in central Pennsylvania with seven acute care facilities (over 1,200 beds) and 2,600 physiciansEngagement description: Pinnacle engaged Veralon to assess the strategic opportunities and implications of the system acquiring Hanover Hospital (Hanover), a 93-bed community hospital located in Pinnacle’s extended service area. This included assessment of the acquisition opportunity, development of an RFP response, negotiation of specific deal terms, and completion of due diligence prior to a definitive agreement.The engagement team included Dan, Scott, Danielle, Sean, Ben, Donnelle, working with Pinnacle’s CFO as a primary point of contact. Had regular contact with the consultants that were managing the process for Hanover (Kaufman Hall).Client challenge/problem

• Pinnacle received an RFP from Hanover and had to quickly make a strategic decision whether to pursue the opportunity
• Once decision was made to pursue opportunity, an RFP response had to rapidly be developed

Our solution

• Worked with leaders at Pinnacle and Hanover to first identify and collect the requisite data from each organization to assess their respective positions, capabilities, and vulnerabilities in the market
• Collaborated closely with work group to identify opportunities for Pinnacle to enhance service offerings in Hanover’s local market
• Evaluation considered physician dynamics, position of competitors, and market evolution scenarios
• Identified opportunities served as basis for affiliation proposal submitted by Pinnacle
• Veralon negotiated the terms of the affiliation, including governance structure and commitments related to capital, physician recruitment, and service line enhancements
• Following the letter of intent, Veralon supported Pinnacle through transaction close, including completion of rigorous confirmatory due diligence on Hanover and coordination of transaction close activities among Hanover, Pinnacle, and their respective consultants and legal counsel
• Specific due diligence activities included:

• In-depth financial due diligence, including quality of earnings, debt/debt-like analyses, and comparative financial ratio analysis;
• Robust evaluation of professional services arrangements (PSAs) to identify potential gaps in clinical services following completion of the transaction;
• High-level employed physician compensation assessment, focused on identifying employed physicians whose compensation was not commensurate with their productivity; and
• Comprehensive reimbursement analysis of performance relative to VBP arrangements.

• Due diligence and transaction close activities on an expedited timeline to support Board and regulatory approvals and meet timeline objectives; the affiliation was finalized in September 2017