4 Strategies to Handle Liabilities in Asset Purchases
Navigating the complex world of asset purchases requires a strategic approach to handling liabilities. This article delves into expert-backed strategies for managing potential risks and transforming challenges into opportunities. From uncovering hidden liabilities to structuring purchases that minimize exposure, readers will gain valuable insights to safeguard their investments.
- Uncover and Classify Liabilities During Due Diligence
- Transform Potential Lawsuits into Loyal Relationships
- Structure Asset-Only Purchase to Minimize Risk
- Conduct Thorough Inspections and Secure Solid Contracts
Uncover and Classify Liabilities During Due Diligence
Before an acquisition, liabilities, both disclosed and undisclosed, belong to the target. After acquisition, all liabilities belong to the acquirer, regardless of whether the acquirer is aware of them or not. This is one of the key reasons why due diligence is extremely important, as evidenced in the case of Bayer-Monsanto and other high-profile deals.
During due diligence, acquirers and their advisers need to dig into the data room and use other means to uncover all liabilities associated with the target. Then, they have to classify those liabilities as:
1) Risks that the seller/target has to mitigate before closing (at the seller's expense)
2) Risks that the buyer is accepting to take on and mitigate after closing (at the buyer's expense)
3) Risks that cannot be mitigated with available resources, making the deal unpalatable for the buyer
The buyer can also incorporate some of these risks into negotiations for a favorable purchase price impact. That leaves us with hidden liabilities, i.e., we don't know what we don't know. To tackle these, buyers resort to representations and warranties from the seller. Should the target's business suffer after closing due to undisclosed liabilities, the seller will still be responsible for making amends. This would involve expensive legal involvement, so it is in the best interest of both buyers and sellers to discuss and disclose all liabilities upfront, before the deal closes.
Transform Potential Lawsuits into Loyal Relationships
When acquiring another direct primary care practice, I discovered hidden malpractice exposure from their previous fee-for-service operations. The liability stemmed from unresolved patient complaints and potential lawsuits from rushed diagnoses under insurance pressure. My risk mitigation strategy involved three steps: comprehensive patient record audits, extended malpractice insurance coverage, and direct patient outreach. I personally called every patient to discuss their care history and address concerns transparently. This wasn't just legal protection—it was relationship building.
The key insight was that most "liabilities" in healthcare stem from poor communication, not clinical errors. By investing time in patient conversations during the transition, we transformed potential lawsuits into loyal relationships. Transparency beats legal maneuvering every time. That's how care is brought back to patients.
Structure Asset-Only Purchase to Minimize Risk
Acquiring assets in behavioral healthcare isn't just about buildings or equipment—it's about people, privacy, and compliance. When we expanded Ridgeline Recovery by acquiring an outpatient facility, I knew we weren't just picking up a new location—we were potentially inheriting someone else's liabilities. In this line of work, one oversight can lead to a legal, financial, or clinical disaster.
The first thing I did was refuse to acquire the entity itself. We structured it as an asset-only purchase. That means we left behind any tax baggage, HR liabilities, pending lawsuits, or compliance issues tied to the original ownership. Clean slate, clean books, no legal trail to worry about. That step alone cut our risk in half.
Next, we brought in third-party experts—a compliance auditor and a healthcare attorney—to vet everything. We checked licensure status, historical billing records, EMR integrity, staff credentialing, and even patient complaint history. If there was something questionable, we flagged it and either negotiated it out of the deal or walked away from that part of the asset bundle entirely.
We also implemented a staff re-application process. There were no automatic transfers. Everyone, from clinicians to admin staff, had to be reviewed and rehired under our standards. This gave us a chance to reset culture, reinforce accountability, and protect the integrity of care from day one.
The last piece was insurance alignment and documentation. We ensured our liability coverage reflected the expansion, that all equipment was re-inspected, and that our patient onboarding workflows reflected current HIPAA and state-level changes.
The bottom line is that acquisitions in healthcare aren't just numbers on a spreadsheet. You're stepping into someone else's operational history. If you don't dig deep, you're gambling with your license, your team's reputation, and your patients' trust. That's not a risk I'm willing to take.
Conduct Thorough Inspections and Secure Solid Contracts
Mitigating liability is key in every deal I do, especially with older properties in Las Vegas. I always start with a thorough inspection—looking for hidden repairs, title issues, or unpaid liens—and I make it a point to work closely with a trusted title company. For homes with extra quirks, like inherited properties or liens, I insist on rock-solid contracts and even escrow holdbacks if needed, so everyone's protected from nasty surprises down the line.
