Buy Side & Sell Side Diligence
Identified reimbursement and contract risks with the potential to significantly impact future revenue.
System integration issues at a physical therapy target.
- Industry | Healthcare
- Engagement | Quality of earnings review, related to potential financing arrangement
Client
A private equity-backed, healthcare provider specializing in rehabilitation services to patients suffering ailments related to the musculoskeletal and neurological systems. RedRidge assisted the Company on the platform and multiple roll-up acquisitions ranging from $10 million to $70 million.
Target
Operates over 50 outpatient or on-site physical therapy clinics, providing contract rehabilitation services to over 90 hospitals, inpatient rehabilitation units, long-term care facilities, and industrial worksites across 21 states.
Situation
Target experienced significant turnover at the corporate management and finance/accounting levels, including CEO, CFO, COO, and Controller. The new management team was not able to provide insight on certain financial reporting inquiries requested by RedRidge.
Target maintained an internally developed practice management system not fully integrated into the financial reporting system. Complicating matters, the system developer had left the Company prior to diligence. Management was unable to provide a knowledgeable and thorough explanation of the reconciliation process between the practice management system and the financial reporting system.
Target had multiple entities with partial or non-controlling interests, which presented challenges when reviewing the business on a consolidated basis.
Solution
Decreased adjusted EBITDA to reflect significant employee turnover at the corporate management level.
Performed detailed testing procedures on the practice management system, reviewed significant balance sheet accounts, and performed a search for unrecorded liabilities and to gain comfort over the practice management system.
Removed all minority interest from EBITDA to appropriately reflect the EBITDA on a consolidated basis post-close.
Identified customer reimbursement and contract risks with the potential to significantly impact future revenue of the Target company, recommended further customer due diligence, and other considerations for the SPA.