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Aligning legal structure with business goals in healthcare mergers and acquisitions.

Structuring Healthcare M&A Transactions: Aligning Strategy with Deal Structure

Serj Mooradian and Seyed Mirabedini, Mooradian Law PLLC  /  March 19, 2025

Structuring a healthcare M&A transaction is not just a legal formality—it is a strategic decision that affects liability exposure, regulatory compliance, tax outcomes, and long-term operational success. Whether a deal is structured as an asset purchase, stock purchase, or merger, each option carries distinct advantages and risks. This post examines the key factors that drive transaction structuring

This post is part of our ongoing healthcare transactions series, where we provide practical insights to help buyers and investors navigate complex healthcare deals.

Defining Your Transaction Objectives

 1. Prioritizing Business and Operational Goals

Before selecting a structure, buyers and sellers must clearly define their priorities:

  • Risk Allocation: Are you looking to minimize successor liability, or are you willing to inherit existing obligations for operational continuity?
  • Regulatory Considerations: Does the transaction involve licenses, accreditations, or payor contracts that are critical to business operations?
  • Tax Efficiency: Will the transaction yield capital gains treatment or permit step-up basis for depreciation?
  • Speed to Close: Does the deal need to close quickly to capture market opportunities, or is the ability to negotiate key liabilities more critical?

 2. Evaluating Internal Resources

Healthcare transactions are complex and involve compliance, finance, tax, and regulatory considerations. Understanding the internal capabilities of your organization helps determine whether external legal, financial, or compliance advisors are needed to structure the deal effectively.

Key Transaction Structures in Healthcare M&A

Asset Purchase: Precision in Acquisition

An asset purchase allows the buyer to acquire selected assets (e.g., equipment, real estate, intellectual property, patient lists) while generally avoiding unwanted liabilities. This structure is particularly useful when:

  • The buyer wants control over which liabilities are assumed and which remain with the seller.
  • The target entity operates multiple service lines, and the buyer only wants to acquire certain aspects of the business.
  • The seller is a division of a larger entity rather than a standalone business.

Key Considerations in Asset Purchases:

  • Successor Liability: Although buyers typically avoid assuming seller liabilities, exceptions exist for tax obligations, environmental claims, and certain regulatory penalties.
  • Transfer of Licenses & Payor Contracts: Many healthcare contracts include anti-assignment clauses, requiring third-party consents for transfer, which can delay closing.
  • Bulk Sales Laws: Some states impose notification and compliance obligations when transferring a significant portion of a business’s assets.
  • Purchase Price Allocation: The tax treatment of goodwill, non-competes, and tangible assets can significantly affect both parties’ tax obligations.

Stock Purchase: Seamless Transition with Greater Risk

In a stock purchase, the buyer acquires ownership of the target entity by purchasing its equity. This structure is preferred when:

  • The target entity holds valuable payor contracts, licenses, or accreditations that must remain intact.
  • The buyer wants to avoid the complexity of reapplying for regulatory approvals.
  • The seller prefers capital gains tax treatment rather than the potential double taxation of an asset sale.

Key Considerations in Stock Purchases:

  • Inheriting Liabilities: Buyers acquire the company “as is,” including all known and unknown liabilities.
  • Third-Party Consents: While fewer consents are required than in asset sales, contracts with change-of-control provisions still need approval.
  • Stockholder Approvals: If there are multiple shareholders, obtaining full consent may be challenging.

Mergers: Full Integration with Comprehensive Risk Transfer

A merger involves the statutory combination of two entities, with one surviving entity assuming all assets, liabilities, and operations of the other. This structure is particularly useful when full legal and operational integration is required, since all assets and associated operations are automatically consolidated into a single entity.

    Key Considerations in Mergers:

    • Structural Simplicity & Business Continuity: Unlike asset sales that require individual asset transfers or stock purchases that retain existing legal structures, mergers allow for seamless integration under a single corporate entity​.
    • Liability Transfer: In contrast to an asset purchase, a merger automatically transfers all liabilities—known and unknown—to the surviving entity. This increases risk but ensures operational continuity​.
    • Stockholder & Regulatory Approvals: Mergers often require stockholder votes and regulatory filings, including certificates of merger and antitrust reviews, which can add complexity to the closing process​.
    • Purchase Price & Consideration Structure: Consideration may be in the form of cash, stock, or a combination of both. Earn-outs and escrows are also common in private company mergers to address valuation and indemnification concerns​.
    • Governance & Organizational Changes: Mergers often result in changes to board composition, executive leadership, and operational governance, requiring careful planning to align cultures and management structures​.

    Given their comprehensive nature, mergers are best suited for transactions where full integration and long-term operational alignment are primary objectives. However, the assumption of liabilities and the need for broader stakeholder approvals make careful due diligence and strategic planning critical to success.

    Regulatory Consideration: The Corporate Practice of Medicine

    Many states restrict non-physician ownership of medical practices under Corporate Practice of Medicine (CPOM) laws. Buyers—including private equity firms and management service organizations (MSOs)—often structure transactions using a “friendly PC model,” where physicians retain ownership of clinical operations while the MSO manages non-clinical aspects.

    Key CPOM Compliance Considerations:

    • State-Specific Laws: CPOM regulations vary widely, and multi-state deals require tailored structuring.
    • Governance Controls: Non-professional buyers should avoid provisions that give them excessive control over clinical decisions, which could violate CPOM restrictions.
    • MSO Structures: Well-structured MSO agreements ensure operational efficiency while maintaining regulatory compliance.

    Tax Implications of Healthcare Transactions

    Asset Sale vs. Stock Sale: Key Tax Differences

    • Buyers in asset sales may benefit from a step-up in tax basis, allowing greater depreciation and amortization deductions.
    • Sellers in stock sales typically receive capital gains tax treatment, avoiding double taxation that can occur in asset sales.
    • Healthcare-Specific Entities (e.g., PLLCs, MSOs) require additional structuring to optimize tax efficiency.

    Common Tax Pitfalls to Avoid

    • Improper Purchase Price Allocation: Misallocating value between goodwill, tangible assets, and restrictive covenants can lead to unexpected tax liabilities.
    • Failure to Address Successor Liability Risks: Buyers in asset purchases must ensure that undisclosed liabilities do not transfer.
    • Misaligned Entity Selection: Certain structures (e.g., C-corporations vs. S-corporations) affect the after-tax proceeds of a sale.

    Healthcare Transaction Structuring: Strategic Takeaways

    • Align Structure with Objectives: Whether an asset or stock purchase or merger, the transaction form should support financial, operational, and compliance goals.
    • Plan for CPOM Compliance Early: Address regulatory hurdles proactively to prevent deal delays.
    • Optimize Tax Treatment: Thoughtful structuring can maximize after-tax value for both buyers and sellers.
    • Negotiate Strategic Protections: Buyers should conduct rigorous due diligence to mitigate risk exposure in stock deals, while sellers should structure earn-outs and indemnifications carefully.

    Looking Ahead: Healthcare Regulatory Considerations in M&A

    This blog is part of our ongoing healthcare transactions series. In our next post, we’ll explore the healthcare regulatory challenges that directly impact deal structuring, including:

    • Compliance with federal and state fraud and abuse laws (Stark Law & Anti-Kickback Statutes)
    • Medicare & Medicaid billing considerations
    • Licensing and payor contract challenges

    Stay tuned for more insights into the regulatory complexities that can make or break a healthcare transaction.

    Need Guidance on Structuring Your Healthcare Transaction?

    At Mooradian Law, we specialize in navigating the legal, regulatory, and transactional complexities of healthcare M&A. Whether you are acquiring or selling a healthcare business, our team provides strategic counsel tailored to your needs.

    Email: info@mooradian.law 

    Phone: (734) 219-4890 

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