Published by ImagingBiz
When the hospital is the buying party in an imaging joint venture, there are four potential issues that could terminate the transaction, all of which stem from due diligence. These issues include one or both parties failing to understand the distinction between fair market value and strategic value, conflicts surrounding how professional payments are determined after the transaction, collection irregularities or other problems with revenue recognition, and management and governance issues for the newly joint-ventured or acquired imaging center. All four of these transaction deal-breakers, however, can be avoided through understanding, preparation, commitment to communication, and setting expectations.
Fair Market Versus Strategic Value
Too often, one or both parties in a transaction will fail to understand the difference between strategic value and fair market value. A seller might have preconceived notions regarding the value of its business based on discussions with other industry participants or on local market conditions, giving the seller expectations regarding the value of the business. In addition, sellers often anticipate the proposed purchase price of their businesses to include the characteristics and strengths of the buyer, such as economies of scale, purchasing power, or higher reimbursement levels. Strategic value often reflects the added value of the buyer post-transaction and is not the standard of value relied upon in health-care transactions.
Health-care facility transactions typically take place at fair market value, which does not include post-transaction buyer benefits in value, but rather is calculated based on the ideas of a typical willing buyer and typical willing seller. Owing to this difference, fair market value is often lower than strategic value. This means that the seller is often disappointed by the buyer’s offer, particularly if the seller was unaware that the buyer would be engaging an appraiser or valuation expert to determine fair market value. Buyers should be transparent about their use of appraisers, and sellers should expect to receive fair market (not strategic) value for their businesses.
