Dr. Vikram Singh Raghuvanshi
Due Diligence of the Existing Hospital to Buy out or Taking on Long Term Lease
9th Feb 2017
As India grows economically, we will see the rise of private health sector. This will give rise to consolidation and some of the largest hospital provider will like to expand fast and one of the options for rapid expansion is buying existing hospital or taking buildings on long term lease. In order to implement this strategy, it is critical that as Hospital Managers, we should know what all we need to check. A few key points we must cross check are:
Land and Building Related due diligence
- See land attachment letter carefully. In case of hospital plot there can be conditions attached such as free treatment to be given for x% or this particular land is say only for Ayurvadic Hospital. We cannot ignore these conditions as such land parcels were allotted in the past on concessional rates due to these very conditions and it will be mandatory to honor it. Some of these conditions could be such that it makes entire venture unfeasible.
- Double check the exact land area, permissible FAR / FSI, setback guidelines, maximum permissible height, permissible ground coverage. Based on these data, confirm if the present building is built within permissible limits.
- If this property is permitted to be sold / leased and any condition attached to it. In some old properties in the hospital, we have seen condition like if land is sold , a certain percentage need to be deposited inthe municipal body.
- Structural Audit of Building is critical to ensure stability of the building.
Legal due diligence
- Detail review of any pending legal cases of building / civil / medico legal / labor related / suppliers are critical to safeguard our interests. Some may have long term financial impact.
- The Professional legal firm should be engaged to review and recommend whether under consideration property is safe to invest.
- Property ownership / title – It is most critical
- Organization structure – Whether it is a company or society or trust, etc.
- Our transaction deal needs to be accordance with applicable norms.
- List of creditors who have filed recovery suits in the court
Medical / Non Medical equipment
We need to evaluate equipments on following parameters
- Equipment / /Year of Purchase
- Purchase price / Any payment due to the supplier
- CMC / AMC – terms & condition
Finance related due diligence
- Any liabilities / debts / Loan and its details
- Any other liability / Payment due to any party
- Last Five year Provisional / Audited accounts
- Any demand notices from statutory authorities.
- Whether any assets taken on lease, if so, the agreement and the monthly lease rentals or installments.
- Debtors and its aging analysis.
- Inventory and its aging analysis
- Creditors for consumables
- Contingent liabilities
- The Guarantees given by the company / Trust.
- Taxation status
- Agreements with banks for loans and advances taken by the company /Trust
- Present manpower strength with details: Year of joining / salary/Qualification
- Any service outsourced and its details
- Engagement with present manpower / doctor: Employment / Contractual
- Any case in labor court and its implication Statuary compliance – PF / ESI etc.
Dr. Vikram Singh Raghuvanshi has done due diligence of hospitals in over 84 cities and these are some of his insights in hospital Take overs and Mergers