With medical device related acquisitions at all-time highs, and regulatory interest from the Federal Trade Commission, the Food and Drug Administration, the Securities and Exchange Commission, and the Office of Inspector General for the Department of Health and Human Services, interest, acquiring companies must exercise extreme diligence and due care in structuring, documenting and consummating acquisitions.
Conventional challenges with mergers and acquisitions include identification of suitable complementary targets, due diligence development and risk assessment, valuation and payment, optimal structure, liability exposure and tax treatment, assumed and excluded assets and liabilities, representations and warranties, pre-closing and post-closing covenants, closing timelines and conditions and termination. There exists a well-established body of principles, terms and documents addressing these problems.
In addition to these traditional risks associated with acquisitions, medical device manufacturers present unique perils. For example, while intellectual property represents a meaningful driver of device manufacturer value, potential liabilities for exposure, damages and duration to the acquirer are persistent, immense and enduring. Similarly, the FDA has announced an ongoing emphasis on enforcement of manufacturing standards and quality, jeopardizing the value of product lines, operations and revenue streams acquired. Device targets present distinctive threats for adverse events, recalls and products liability. The SEC meanwhile expresses renewed interests in "channel stuffing" and similar distribution excess, triggering costly class action shareholder litigation over fraudulent revenue recognition. Finally, the offer, distribution and sale of medical device products and services is governed by complex federal and state statutory and regulatory requirements, including attention to financial ownership, referral relationships and off-label promotion.