Disclaimer: As with many client case studies, the names of the people have been changed to protect the attorney-client information. However, the facts and laws are real and should be considered accordingly.
Aesthetic practices operating in a highly regulated environment sometimes focus on growth and patient demand rather than formalizing compliance structures. In this case study, a multi-location aesthetic practice pursued an acquisition opportunity with a private equity buyer only to encounter unexpected compliance concerns during the due diligence phase.
Longstanding operational practices, undocumented agreements, and scope-of-practice issues came under close review, placing the transaction at risk. This case study illustrates how compliance gaps can surface during health care mergers & acquisitions (“M&A”) and why addressing regulatory issues in advance is vital to protecting deal value and closing certainty.
The Case of Aesthetic FC and a Private Equity Acquisition
Aesthetic FC had been operating successfully for over a decade, building a strong brand and loyal client base in the aesthetic health care space. When the Glazer Fund, a private equity group focused on expanding in high-growth health care sectors, approached Aesthetic FC with an acquisition proposal, it appeared to be a strategic fit for both parties. After signing a non-binding Letter of Intent (“LOI”) outlining the initial terms, the deal advanced into the due diligence phase.
Due Diligence Reveals Compliance Risks
Due diligence is often called the underwear drawer moment, the point at which every part of a business is open for review. For buyers, it is more than just a verification of financials. It is a comprehensive examination of operations, contracts, corporate structure, and regulatory compliance to uncover risks that could affect value or create future liability.
In health care transactions, this includes a close look at clinical practices, scope-of-practice compliance, and patient safety protocols. How a business performs under this scrutiny can shape deal terms, influence valuation, and determine whether the transaction moves forward on schedule.
Many people are shocked as to how much more data must be delivered and discussed during the due diligence phase compared to when the parties are simply under a non-disclosure agreement (“NDA”). During the NDA phase, the buyer will not be as focused on financials and other key agreements to the deal. But in the due diligence phase, the buyer is examining all data and documents.
The Glazer Fund sent a standard due diligence checklist covering corporate documents, real estate, contracts, intellectual property, litigation, insurance, and compliance at both the state and federal levels. On the surface, Aesthetic FC appeared ready. However, as documents were uploaded and records examined, it became clear that the materials were far from organized and revealed significant gaps.
Key Issues Identified During the Due Diligence Phase
Once the due diligence checklist arrived, ByrdAdatto immediately began working with Aesthetic FC’s leadership to organize documents and upload materials for the buyer’s review. The ByrdAdatto team provided guidance on how to approach the checklist and helped the owners locate and categorize key records.
As the process unfolded, ByrdAdatto periodically reviewed the submitted materials, flagged missing items, and ensured that Aesthetic FC’s team was keeping the process moving. Through this hands‑on involvement, several serious red flags emerged:
- Lack of Formal Contracts: Many relationships existed only as “handshake” or verbal agreements rather than written contracts. Some of the agreements that did exist were missing required third-party consents or included rights of first refusal, which could complicate an acquisition.
- Subsidiary Transactions: Funds moved between affiliated entities without supporting documentation or a contractual framework, creating ambiguity around liability and the value of assets.
- Compliance Failures in Health Care: This was the most serious concern. Services such as CoolSculpting, microneedling, and IV therapy lacked documented good-faith exams by properly licensed medical personnel, such as medical doctors, nurse practitioners, or physician assistants. In some cases, unlicensed staff were performing tasks outside their legal scope of practice.
When ByrdAdatto flagged these issues to Aesthetic FC’s owners, they were surprised. They had been running the business the same way for years without issues and assumed everything was fine. Thinking that day-to-day operations automatically mean compliance is a common mistake and can create real risks once a buyer digs in. This case shows why proactive compliance and solid documentation are critical in health care M&A, because what seems routine can become a major problem during due diligence and impact the outcome of a deal.
Consequences of the Due Diligence Phase
Transparency is non‑negotiable in M&A deals. Once ByrdAdatto identified compliance, contract, and subsidiary documentation issues, those findings were presented to the Glazer Fund, and Aesthetic FC prepared for a difficult reaction. In many transactions, serious compliance gaps lead buyers to delay closing, renegotiate price and terms, or walk away entirely. Sometimes buyers demand that issues be fixed before moving forward, which can stall or even kill a deal.
Outcome: Health Care M&A Transaction Closed with Compliance Plan
In this case, the Glazer Fund took a different approach. Despite the significant compliance concerns that were uncovered, the Glazer Fund remained committed to moving forward. What mattered most to them was bringing the Aesthetic FC team into their organization. They understood the compliance issues but were comfortable addressing them post-closing rather than requiring remediation before the deal could proceed. Because of that focus, the remainder of the process continued without major disruption, and the transaction closed successfully.
How a buyer responds to risk varies by deal and by buyer. Some buyers are highly risk‑averse and make compliance a pre‑closing requirement, while others are willing to balance risk with strategic priorities. In this case, the Glazer Fund’s emphasis on the people and growth potential allowed the deal to proceed even with recognized gaps that will require post‑closing attention.
But a seller can’t anticipate which way a buyer will go. This is why the prudent approach is to take the guesswork out of it by getting your house in order well beforehand. Any practice thinking about or planning to sell should conduct a comprehensive compliance check at least 12 months before going to market. This will allow time to deal with any identified issues and clean them up for the due diligence process.
What to Know About Health Care M&A Transactions
Before entering a health care M&A transaction, practice owners should understand these key realities about how buyers assess risk, compliance, and operations.
Due Diligence Is a Full Audit, Not a Rubber Stamp
Buyers are not just checking boxes. They are confirming every assumption you have ever made about your business. Your paperwork must validate your operations.
Compliance Is Not Optional, It Is Strategic
In health care, compliance goes beyond simply following the law. It signals operational maturity and effective risk management. Buyers view compliance weaknesses as future liabilities, not just past oversights.
Transparency Builds Trust
Disclosing issues early, even difficult ones, builds credibility. Hiding problems rarely works because they almost always surface eventually.
Buyers Vary in Risk Tolerance
Some buyers will walk away at the first sign of ambiguity. Others may proceed, negotiating protections such as price adjustments or indemnities. You cannot know which type you are dealing with until due diligence begins.
Get Your House in Order
Addressing compliance and documentation proactively, rather than reactively during due diligence, saves time, money, and negotiating leverage.
Protect Your Medical Practice Sale with ByrdAdatto
Health care transactions carry unique regulatory and operational risks, and assumptions about day-to-day operations can create serious challenges during due diligence. This case study highlights the importance of proactive compliance, thorough documentation, and careful oversight to protect deal value and ensure a smooth transaction.
Our legal team works closely with clients to transform potential obstacles into opportunities for growth and successful outcomes. Contact ByrdAdatto to learn how we can guide your business through every stage of practice acquisition.
