Against the backdrop of an ageing population, M&A deal value in the healthcare sector grew by 31% to a record high of USD435 billion in 2018. This easily surpasses the GDP of Singapore, and reflects the rising influence of the healthcare sector in our world economy.

To help clients understand the key issues that can make or break a deal for healthcare or life sciences, RSM Singapore co-hosted a seminar with Bird & Bird ATMD on 21 October 2019 outlining key considerations commonly encountered in healthcare-related transaction from the valuation, tax, legal and intellectual property (“IP”) perspectives. 

Woo E-sah (Partner, Audit, RSM) set the stage with her presentation on the healthcare industry outlook and some case studies of healthcare M&A deals.  She also shared possible motivations behind mergers and acquisitions such as business diversification, expansion of portfolios or product offerings, and business consolidation.  She then walked the participants through common M&A considerations.  Besides organisational, structural, cultural, synergy and monetary considerations, important considerations are valuation, tax, legal and IP. 

What is my business worth?

“Price is what you pay. Value is what you get." Warren Buffet 

Drawing from his years of industry experience, Terence Ang (Partner, RSM Corporate Advisory) outlined the factors driving the divergence between value and price.  After an overview of valuation concepts, Terence shared practical insights on what business owners can do to enhance the valuation of an M&A transaction.

The key to value creation and reconciliation is in understanding the key business drivers and increasing cash flows of the company.  Strategic initiatives to create & enhance the value of a business include:

  • Fine-tuning business model and key value drivers;
  • Profit improvement via operational factors;
  • Managing financial factors, in particular cashflows;
  • Optimising deal structure; and
  • Protecting and monetising IP.

Tax Issues to Consider and Pitfalls to Avoid in M&A Transactions

Besides the intrinsic value of the business, value can also be created by optimising tax efficiency and managing tax exposures.  Hsu Chong Hoe (Director, Tax Advisory, RSM) then shared four areas of consideration in an M&A transaction from the tax perspective:

  • Investment structuring issues
  • Tax due diligence review
  • Future income repatriation and exit tax
  • Deductions for acquisition shares and for IP rights

Chong Hoe cautioned participants to take into consideration the implications of differing tax laws for cross border transactions, and emphasised the importance of carrying out a rigorous tax due diligence exercise in any transaction.  He also shared with the participants that it is important to plan ahead for future income repatriation and exit tax, and tax incentives to maximise the benefits of M&A one can take advantage of.

Getting the deal done: Issues to watch out for in a healthcare acquisition or investment

The trajectory for healthcare, life sciences and MedTech industries in Asia remains positive and this session served as a useful primer for participants on legal issues and processes in an acquisition or investment in these industries.

In this session, Marcus Chow (Partner, Bird & Bird ATMD) covered the following salient points in getting the deal done:

  • Deals process
  • Tender versus no tender
  • Due diligence
  • Confidentiality
  • Exclusivity
  • Term sheets
  • Purchase and investment agreements
  • Shareholders and joint venture
  • Series investments (seed, Series A, corporate venture capital)
  • Legal  issues to watch out for healthcare, life sciences and MedTech

Intellectual Property Due Diligence

Anan Sivananthan (Partner, Bird & Bird ATMD) discussed some of these IP issues that are relevant to healthcare and MedTech companies:

  • Complete Patent, Design, Trademark and Copyright portfolios
  • IP Licenses
  • IP Litigation (including Patent and TM oppositions, cancellations, etc.)
  • NDAs and other contracts
  • Retained/Leaving employees - relevant IP knowledge in their possession; employment contracts (in particular, any ongoing obligations to the company concerning IP)
  • Trade secrets and clinical data

It may be easy to be optimistic about valuation and prospective outlook with the resurgence in healthcare-related M&A activity. It is imperative that business owners and acquirers understand the key value drivers and underlying risk factors of the business from the financial and legal perspectives, before embarking on any M&A transaction.   

With a deeper understanding of how valuation, tax, legal and intellectual property considerations in an M&A process, participants can now be in a better position to make certain decisions concerning M&A.

 

Sabrina Tay
Partner & Industry Lead – Healthcare Practice; CPA Talent Leader
T+65 6715 1318
[email protected]

Keith Tan
Director & Deputy Industry Lead, Healthcare Practice
T+65 6594 7895
[email protected]