Issues
- A Home Health Company formed an Employee Stock Ownership Plan Trust (ESOP) and a Trustee was appointed to manage the Trust
- The Trust purchased a significant ownership interest in the Company, financed through a large, internal loan. The purchase price was established by a national valuation firm
- Within 24 months of the Transaction, the Company’s net profits declined significantly, leading to a large decline in the valuation of the Company and the ESOP’s shares in it
Approach
- HMP was engaged to opine on the adequacy of the due diligence performed by the ESOP Trustee in conjunction with the ESOP Transaction, including the assumptions incorporated in the valuation of the Company provided by the national valuation firm
- HMP reviewed CMS Medicare cost reports for all non-hospital-based home health companies over an 8-year period using its proprietary HMP MetricsTM platform
- Created and analyzed a historical profile of the Company’s operations, and compared standard industry metrics used to evaluate financial and operational performance to state and national peer groups
- Conducted a detailed assessment of market and policy risk associated with the operations of the Company in the northeast metropolitan area where its revenues were concentrated
Results
- HMP demonstrated that the Trustee failed to adequately investigate and understand the true nature of the Company’s business model, including its risk profile, despite this data being publicly available, leading to an overvaluation of the Company and the ESOP paying significantly above fair market value for the shares it purchased in the Company
- Case settled favorably out of court