PE-Backed Healthcare Company Seeks Horizontal Financial Integration of 5 Physicians’ Groups

The client

The clients’ primary goal was to complete a horizontal financial integration of five physicians’ groups: Cash to Accrual, Budget, Forecast, Consolidation, Revenue Recognition, Physicians Compensation, Net Working Capital.

The challenge

When a private equity firm with nearly $2B in assets under management (2019) was in need of a horizontal financial integration for one of its portfolio companies, it turned to the E78 Transaction Services team. The PE firm initially acquired five healthcare practices comprising of eight entities across the US in early 2020 and tasked the E78 team with developing relationships across each practices’ finance leadership team to plan and enable a robust and scalable integration. Client requirements included:

  • Moving the five practices from disparate cash-basis financials to consolidated accrual-based financials within 90 days post-close for credit reporting deadlines;
  • Creating physician’s compensation and initial budget models and gaining practice physicians and finance leaders buy-in;
  • Building acquisition date opening balance sheets to enable close and net working capital true-up;
  • Establishing process and structure for accrual revenue recognition in accordance with ASC 606; and
  • Ensuring sufficient controls and properly stated financials to pass a consolidated first-year audit.

For the E78 team, this meant developing a deep understanding of five unique entities’ practice operations, disparate financial, practice management (revenue) and inventory management systems, as well as:

  • Educating the practice physicians and finance leaders on GAAP based financials;
  • Ensuring timely accrual close without significant change or disruption to current practice operations; and
  • Combining disparate cash-based ERP trial balances in one place for consolidated financial reporting

The solution

Leveraging extensive hands-on and technical expertise, the E78 team delivered a collaborative and scalable solution the client was unable to deliver with internal resources alone, including:

  • A fully deployed and tailored hosted collaboration tool for robust internal and external integration planning and communications, as well as a monthly close checklist and accelerated timeline to facilitate a holistic close.
  • An “ERP” solution modeled in excel for cash to GAAP conversions and consolidation of eight separate trial balances.
  • Initial budgets, flux analysis, (actual to budget to QoE) and MOM results to support private equity sponsors and lender reporting.
  • Separate database-based practice models for monthly accrual revenue calculation at the patient encounter level to enable timely, accurate accrual revenue reporting for stakeholders in accordance with ASC 606.
  • Tailored training and transition plans for practices and headquarters on budgeting, physicians comp modeling, and accrual-based financials.

The result

The portfolio company leveraged E78’s financial and transaction expertise to integrate five practices’ finance functions. The team was tasked with converting from cash to GAAP without changing current process and policy at the practices.

E78’s approach delivered:

  • Full conversion from cash-basis financials to accrual within 90 days to meet credit reporting deadlines without disruption to the practice operations.
  • Seven months of full accrual-based closes and continued support during transition phase.
  • A timely, accurate and efficient database driven accrual revenue calculation process.
  • Revenue and liquidation dashboards to enable timely analysis of accrual revenue data.
  • Audit ready controls, financial reporting processes and financial statements.
  • Tailored plan for full time HQ finance resource solutions.
  • Smooth transition and training from E78 resources to clients’ resources.
  • Simple, organized monthly close process by practice.
  • Templated close, ERP and data model for future M&A growth and expansion.

E78 delivered a first-class scalable solution and a full roadmap designed to quickly assimilate new acquisitions, further accelerate month-end processes, and provide future enhancements to enrich the company’s analysis capabilities. Many customers are looking for a similar solution without the headache of finding the right technical resources for such an intense and critical integration effort.

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