Case study · 09

The Due Diligence That Walked a Buyer Away

Commercial due diligence uncovered a single-payer growth risk and capacity limits, leading a private equity fund to withdraw before close.

Sector: Healthcare services
Engagement: Commercial and operational due diligence

Withdrew before closeFund exited exclusivity ahead of signing

18 monthsWindow until payer repricing clause took effect

Materially lower valuationAsset traded down once repricing occurred as modelled

01 The Problem

The operating constraint behind the numbers

A private equity investor stood in exclusivity on a healthcare services platform showing impressive reported growth. Financial diligence was clean. The fund commissioned commercial and operational diligence as a final check before committing.

02 The Evidence

The evidence leadership could act on

Where Recent Growth Came From

Single payer contractMost of recent growth
Rest of growthRemainder of growth

Source: most recent growth traced to a single payer contract with a repricing clause due within 18 months

From Diligence Finding to Repricing

Diligence finding

Repricing clause due within 18 months identified

Repricing occurred as modelled 12 months later

Repricing occurs

Source: a repricing clause due within 18 months... The fund withdrew before close. Twelve months later the repricing occurred as modelled and the asset traded at a materially lower valuation.

03 The Kingswell Response

What changed in the management system

Channel conversations with referring physicians and payers

Held channel conversations with referring physicians and payers to test the sustainability of reported growth.

Patient flow analysis at facility level

Analysed patient flow at facility level, finding two flagship facilities were already operating at practical capacity.

Rebuilt the growth bridge

Rebuilt the growth bridge to trace how much of recent growth depended on a single payer contract with a near-term repricing clause.

05 The Result

What the organisation could do next

The work went where documents do not. Channel conversations with referring physicians and payers, patient flow analysis at facility level and a rebuilt growth bridge revealed that most recent growth traced to a single payer contract with a repricing clause due within 18 months, and that two flagship facilities were already operating at practical capacity. The fund withdrew before close. Twelve months later the repricing occurred as modelled and the asset traded at a materially lower valuation. The engagement cost was a rounding error against the loss avoided.