Transactional issues

Structures

What is the typical structure of a healthcare-related business combination in your jurisdiction?

In Argentina, business combinations can be a result of a merger or a spin-off operation. There are no specific structures for either healthcare or life sciences-related business combinations, being the aforementioned operations the typical structure for all business.

The Argentine Companies Law No. 19,550 (ACL) regulates the merger and spin-off operations, setting forth the following definitions.

Mergers

These operations occurs when (i) two or more companies transfer their assets and liabilities to set up a new company (the successor company), which issues shares to the shareholders of the merged companies that are then dissolved (mergers by consolidation); and (ii) where one or more companies (the absorbed companies) transfer their assets and liabilities to an existing company (the surviving company), which issues shares to the shareholders of the absorbed companies that are then dissolved (mergers by absorption).

Spin-offs

These operations occur when a company:

  • separates part of its assets and liabilities from its existing assets and liabilities and either creates a new company or merges such assets and liabilities into one or more existing companies;
  • separates part of its assets and liabilities from its existing assets and liabilities and creates one or more companies to which these assets and liabilities are transferred; and
  • creates new companies into which all of its assets and liabilities are transferred.

It is also possible for a company to obtain control over another company by acquiring part or the whole amount of its shares. In this case, there would only be a change in the ownership of said company (ie, partners, shareholders, etc) and not a change in the company itself, meaning that the licences, permits, authorisations and tax ID, among others, will remain the same. This is known as an acquisition.

Timeline

How long do healthcare business combinations usually take, and what factors tend to be most significant in determining the timing to completion?

Both healthcare and life science business combinations usually take four months to one year to be completed depending on several conditions, namely:

  • target company size;
  • target company compliance with laws and regulations;
  • documentation provided or available for the acquiring company (licences, permits, authorisations);
  • financial status of the target company; and
  • buyer company compliance with all necessary licences, permits, authorisations for acquiring the business depending on the structure of the operation, among others.

The proceedings may also vary depending on the jurisdiction, due to the fact that some local authorities have better infrastructure than others, with more resources to attend to these kinds of transactions (ie, more inspectors, better filing systems, etc). Contrary to life science businesses in which the national health authority is in charge of issuing the permits and authorisations, healthcare businesses fall under the local jurisdiction of the provincial health authorities where they are located, with the corresponding amount of regulatory requirements affecting the timing and, in some cases, buyer must also fulfil regulatory requirements for the acquisition (for example, for the acquisition of a clinical laboratory analysis the regulations may require that one of the shareholder must be a biochemist or physician).

Representations and warranties

What are the typical representations and warranties made by a seller in healthcare business combinations? What areas would be covered in more detail compared with a more general business combination?

The typical representations and warranties made by a seller in a healthcare or life sciences business are those related to the validity of the permits, authorisations and licences issued by both local and national healthcare authorities, which will allow the buyer to legally operate the business without disruption and without being subject to sanctions after closing. Also, sellers generally warrant that all employees are duly registered and are able to carry out their professional activities in their facilities (ie, physicians, biochemists). In addition, for life sciences businesses, it is important that the seller represents and warrants that product marketing authorisation certificates (MACs) issued by the National Agency of Medicines, Food and Medical Technology (ANMAT) are valid. Finally, in these kinds of businesses, the contracts with public-private healthcare insurance providers, pharmaceutical or devices commercialisation channel, services providers and other health-related businesses are crucial, so in general, the seller represents and warrants that these related contracts are in full force and effect.

Due diligence

Describe the legal due diligence required in healthcare business combinations. What specialists are typically involved? What searches would typically be carried out?

The main aspects to be considered in healthcare or life science businesses’ legal due diligence are the authorisations, licences and permits granted by the municipal, provincial and national health authorities, authorising the company to perform its business and activities (facilities, professionals, etc). The permits and authorisations granted by the local Public Registry are also key elements in these operations. Both life sciences and healthcare businesses’ legal due diligence should have a full compliance assessment when acquiring a business from a local third-party seller. Reviewing the manner in which the target company interacts with healthcare professionals and public officers is critical from a regulatory, and anti-bribery and anticorruption perspective. As an example, healthcare professionals are also considered public officers in the event they provide services in public hospitals, even on a part-time basis, and whether those services are remunerated or not.

The lawyers involved in these kinds of transactions are mainly those specialised in healthcare or life science practice, tax, corporate, customs, compliance, antitrust, intellectual property, administrative, labour and environmental law. Other specialists may include accountants, notary publics, etc.

Because the information is not always provided complete by the target company, additional researches would be needed through the health authorities’ public data bases, among other methods.

Risk exposure

If due diligence is not correctly undertaken, what specific healthcare risks might buyers inherit?

Under Argentine law, the buyer is responsible for auditing the target company and assumes the responsibilities once the transaction is closed. If the due diligence is not performed correctly, additional to the risk in purchasing an ongoing business that it may not comply with having all the necessary permits and authorisations for continuing the activities by the buyer, the buyers may be also subject to local or national sanctions. These sanctions may include warnings, fines, total or partial closure of the healthcare or life sciences business facilities, and suspension or definitive cancellation of the registration with the applicable authorities, among others. The company and their representatives can also be liable under criminal sanctions if they infringe the Argentine Criminal Code or other related laws.

If one of these claims or sanctions arises, the buyer (company or physical person) will be in a better position to defend itself if the due diligence was carried out exhaustively and with professionalism.

Specific diligence issues

How do buyers typically approach specific material diligence issues in healthcare business combinations?

Due diligence procedures usually include certain specific requests aimed at understanding how the target company approaches these issues and the risks associated with its conduct of business. In this sense, buyers usually request the target company to disclose all claims received in connection with their businesses, including but not limited to: adverse events, consumer claims, requests from the authorities to withdraw products from the market or any other material requests, investigations, procedures or sanctions by such administrative or health authorities, a target’s quality control proceedings or recall, and safety or other related policies, among others. It is also very important to retain appropriate counsel to verify the sufficiency and status of insurance policies in place.

Conditions before completion

What types of pre-closing conditions are most common in healthcare business combinations?

In the case of asset deals, it might be necessary for the buyer to obtain certain regulatory authorisations from the health authorities prior to the closing of the transaction for being capable of continuing the business to be acquired (for example, being the buyer licensed as a pharmaceutical company if medicines’ marketing authorisations are part of the assets). In those cases, this will be included as a pre-closing condition. Other than this and any other specific pre-closing condition a certain particular deal may require, pre-closing conditions are fairly standard (compliance with covenants, bring-down of reps and warranties, no actions, among others).

Pre-closing covenants

What sector-specific covenants are usually included to cover the period between agreement and completion in healthcare business combinations?

The seller is usually required to inform of any circumstance that would make reps and warranties not true or complete or the pre-closing conditions non-achievable. Depending on the structure of the transaction, regulatory collaboration duties are included to address all necessary regulatory issues for acquiring the business between seller and buyer and making the filings with the health authorities, build-up a bridge inventory of products for the transition period between agreement and completion to assure business continuity and avoid a shortage of products on the market.

W&I insurance

What specific provisions are commonly seen in warranty and indemnity insurance policies for healthcare business combinations compared with general business combinations?

The most common provisions refer to the authenticity and validity of the sanitary and healthcare permits of the company and products authorisations, and licences issued by both local and national healthcare authorities. There are also provisions referring to the authorisations granted by the local Public Registry for the company to carry out its business. Also, indemnities regarding compliance with local laws and regulations are usually given to the buyers. Finally, coverage for possible past and future sanctions imposed by the authorities is usually required by the buyers.

Specific documentation

Is there any sector-specific documentation typically used in healthcare business combinations? Does this differ depending on the structure of the transaction?

Yes, and it will depend on the structure of the transaction and the specific activities conducted by the target company in the healthcare or life sciences field. Conceptually, in both cases specific documents evidencing in-force licences and authorisations granted by the health authority for conducting business as a company (healthcare or life sciences) and for the products or services related are needed.

Post-completion undertakings

Which post-completion undertakings are common in healthcare business combinations? Which undertakings are common?

This will depend on the structure of the transaction and the specific activities conducted by the target company in the healthcare or life sciences industry. Undertakings for collaboration regulatory duties with the health authorities are usually part of the post-completion activities (for making regulatory filings, having discussions with the health authority agents, issuing regulatory documentation, updating company or products permits and authorisations, etc).