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Healthcare M&A

Getting The Deal Through

September 2019

Getting the Deal Through – Healthcare M&A provides international expert analysis in the main issues in healthcare M&A transactions. It also acts as a comparative legal guide for cross border or multi-jurisdictional activities.

You can read and download the Russian chapter below. If you would like any further information with regard to this chapter, please contact the CMS Russia healthcare team.

Transactional issues


1. What is the typical structure of a healthcare-related business combination in your jurisdiction?

Healthcare sector being no exception, most M&A transactions in Russia are structured as share sales, both in relation to private companies and
public listed targets. 


2. How long do healthcare business combinations usually take, and what factors tend to be most significant in determining the timing to completion?

Unless the transaction involves a complicated pre-completion restructuring of the target business (eg, if not all relevant business lines, related  licences and other authorisations are ‘packaged’ within a consolidated transaction perimeter allowing for a share deal), the timeline would be mostly driven by the applicable merger clearance requirements. The review period by the Russian antitrust regulator is between one and three months. 

Representations and warranties

3. What are the typical representations and warranties made by a seller in healthcare business combinations? What areas would be covered in more detail compared with a more general business combination?

Not surprisingly for a transaction in such a heavily regulated sector, most substantial warranties in relation to a target healthcare business would be focused on the relevant regulatory aspects (eg, state regulation of prices for the relevant products or services and compliance with licensing requirements, anti-money laundering, anti-bribery and anticorruption legislation).

Due diligence

4. Describe the legal due diligence required in healthcare business combinations. What specialists are typically involved? What searches would typically be carried out? 

A pre-acquisition legal due diligence review of a Russian healthcare business requires involvement of a multi-disciplinary team composed of pecialist lawyers across a range of practice groups, including corporate, life sciences regulatory, antitrust, intellectual property, banking, real estate, environmental, disputes and tax.

Risk exposure

5. If due diligence is not correctly undertaken, what specific healthcare risks might buyers inherit?

To the extent neither identified in the relevant legal, financial, tax or commercial due diligence investigation, a rigorous background check or
a business intelligence or forensic review nor covered by the relevant buyer’s protections in the acquisition agreement(s), exposure to administrative liability, loss of key business or product authorisations, potential business stoppage and non-compliant business practices pose the most significant risks for the buyer of a healthcare business in Russia.

Specific diligence issues

6. How do buyers typically approach specific material diligence issues in healthcare business combinations? 

Depending on the buyer, the jurisdictions of its corporate and business presence and its appetite for taking risk on reputational issues that may otherwise be deal-breakers, the most conventional contents of the buyer’s M&A toolkit would include, in addition to the usual set of warranties, conditions precedent in relation to issues that can be fixed prior to completion (eg rectification of ongoing non-compliance or other exposure, including a ‘clean-up’ of the relevant business practices that may have to be reported pursuant to the applicable anti-bribery legislation of any relevant jurisdiction).

Conditions before completion

7. What types of pre-closing conditions are most common in healthcare business combinations?

The most common pre-closing conditions in healthcare business acquisitions include receipt of the required antitrust consent(s) and rectification of any regulatory or compliance issues that depend on a more specific type of the target healthcare business. They could also include issuance by parties to any major business contracts with the target group (eg, joint marketing, collaboration or other agreements) of any consents or aivers under any change of control or ownership covenants contained in such contracts.

Pre-closing covenants

8. What sector-specific covenants are usually included to cover the period between agreement and completion in healthcare business combinations?

These would include any regulatory or compliance related aspects of the business conduct within the relevant time period, including any action related to issuance or renewal of any regulatory licences, authorisations or consents (including marketing authorisations), entry into, or renewal of, any contracts with key customers, suppliers or personnel.

W&I insurance

9. What specific provisions are commonly seen in warranty and indemnity insurance policies for healthcare business combinations compared with general business combinations?

The W&I insurance market for Russian M&A deals is still at quite an early stage of its development, and it is yet to be seen to what extent the relevant insurance product will be driven by any peculiarities of the sector in which the target business subject to the relevant acquisition operates.

Specific documentation

10. Is there any sector-specific documentation typically used in healthcare business combinations? Does this differ depending on the structure of the transaction? Since, as noted, most transactions in the Russian healthcare sector are done as share deals, the key documentation revolves around the sale and purchase of shares and related matters.

Post-completion undertakings

11. Which post-completion undertakings are common in healthcare business combinations? Which undertakings are common?

We would normally see traditional non-compete, non-solicitation and non-poaching undertakings, but the non-compete undertakings will
require an antitrust consent (which sometimes puts the parties off from incorporating them as they would have to file the acquisition documentation with the antitrust regulator and disclose its terms) and the enforceability of the other two under Russian law is still questionable.

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Laws and regulations

12. What are some of the primary laws and regulations governing or implicated in healthcare-related business combinations? Are healthcare assets subject to specific regulation that would be material in a typical transaction? Is law and regulation of healthcare national or subnational?

Healthcare-related business combinations in Russia are governed by the same civil and corporate laws and regulations as other business combinations (eg, Civil Code of the Russian Federation, Federal Law on Limited Liability Companies, Federal Law on Joint Stock Companies, etc). There are no specific laws governing healthcare business combinations.

Nevertheless, provisions of the main healthcare laws should be taken into account in the course of healthcare business combinations as related to the specifics of assets being transferred, regulatory obligations, etc. These laws include:

  • Federal law as of 12 April 2010 No. 61-FZ ‘On medicines circulation’;
  • Federal law as of 21 November 2011 No. 323-FZ ‘On the fundamentals of healthcare protection of citizens in the Russian Federation’; and
  • Federal law as of 04 May 2011 No. 99-FZ ‘On licensing of certain activities’ integrally with the corresponding governmental regulations providing for licensing requirements on manufacture of medicines, medical and pharmaceutical (including wholesale and retail trade of medicines) activity.

In addition to national legislation, there are some supranational regulations on circulation of medicines and medical devices at the level of the Eurasian Economic Union (currently comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia), that is, the Rules on Registration and Expertise of Medicines for Medical Use dated 3 November 2016 No. 78.

Consents, notification and filings 

13. What regulatory and third-party consents, notifications and filings are typically required for a healthcare business combination?

As a general rule, no third party or regulatory consent is specifically required for healthcare business transactions. However, as a matter of exemption, such consent may be required if a company carries out activities qualified as strategically important to the public. For instance, a vaccine manufacturer may conduct activity related to infectious agents. In such a case, as required by law, the acquisition of more than 50 per cent of shares or participant interests or acquisition of control in other ways is subject to prior approval of the transaction by the Federal Antimonopoly Service and special governmental commission.

Ownership restrictions

14. Are there any restrictions on the types of entities or individuals that can wholly or partly own healthcare businesses in your jurisdiction?

As a general rule, Russian law does not set forth any ownership restrictions in respect of healthcare businesses. However, as a matter of exemption, certain restrictions may be applied if a company is engaged in certain investment projects that are subject to special requirements for investors. In particular, an investor, entering into a special investment contract (allowing to gain some tax and other regulatory preferences in return for a certain volume of investment in the Russian economy), shall not be controlled by entities from offshore jurisdictions.


15. Are there any restrictions on who can be director of healthcare businesses in your jurisdiction?

Owing to the rules on licensing pharmaceutical and medical activity a CEO of medicinal or pharmaceutical company shall have a respective medical or pharmaceutical education and relevant professional background (from three to five years). However, in pharmaceutical companies this requirement may be ignored if the CEO is not engaged in pharmaceutical activity (sale, storage, transportation or retail of medicines) by any means and the respective duties are imposed on another employee (eg, the head of a warehouse).

The above requirements are not applied to the board members. 

Operating outside the home jurisdiction

16. What domestic regulatory issues might arise for a company based in your jurisdiction operating healthcare businesses in other jurisdictions?

Russian law does not provide for any special rules for Russian companies operating healthcare businesses in other jurisdictions. 

Cross-border acquirers

17. What domestic regulatory issues arise when the acquirers of healthcare businesses are based outside the jurisdiction?

Normally foreign acquirers do not face any special regulatory barriers in respect of healthcare businesses acquisition save for special cases
mentioned in questions 14 and 15.

Competition and merger control

18. What specific competition or merger control issues may arise in healthcare business combinations?

The Federal Anti-monopoly authority (FAS) reviews mergers in the healthcare industry primarily in terms of the resulting restrictions on  competition and other competition-related consequences (such as creation or strengthening of a dominant position). If the transaction involves
a dominant undertaking (such as a manufacturer of a unique medicine), the FAS grants a conditional clearance subject to remedies aimed at reducing an adverse effect on competition (eg, conclusion, amendment or termination of certain contracts, sale of assets (divestiture), etc). For instance, when clearing a transaction involving companies active in the area of healthcare, the FAS may issue a binding order that requires the undertaking concerned to ensure that the contracts entered into by the target are duly performed; prepare and publish the commercial policies; ensure that there is no unreasonable cutting back or termination in the production of the products (drugs); inform the FAS of competition of the acquisition and compliance with the clearance requirements. Such remedies are typical in the context of a pharmaceutical sector.

Also, the issue of product market definition remains topical in practice, as the competition authority sometimes tends to define the product
market in the pharmaceutical sector rather narrowly.

Certain M&A deals in the pharmaceutical or healthcare market may also be caught by the Federal Law No. 57-FZ On Procedures for Foreign Investment in Companies of Strategic Significance for National Defence and Security of the Russian Federation that applies to transactions
relating to the participation of foreign investors in companies engaged in business deemed to be strategic to the country (such as activities connected with causative agents of infectious diseases which are conducted by Russian pharmaceutical companies). In this case, a prior approval of the Government Committee on Control over the Foreign Investments to the Russian Strategic Entities is essential before proceeding with other regulatory approvals. 

State and private healthcare combinations

19. Are there any differences for healthcare business combinations if the transaction relates solely to businesses servicing private clients rather than state-funded clients? 

Depending on the type and specific features of a particular business, the deal structure and terms may need to take into account the regulatory impact on the business’s revenues (eg, state regulation of prices for the products or services sold by the relevant business), its contractual and operational structures, its staff, etc. A serious share of state-funded clients in the business’s portfolio adds an additional spin to all of the above, together with the need to take into account the Russian public procurement regime.

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Financing and valuation


20. How do buyers typically finance healthcare-related business combinations?

The buyers intending to acquire a healthcare-related company or business in Russia usually use the same acquisition finance structure as the  ones used for the acquisition financings in other sectors. Such acquisition finance structures may be characterised in Russia by the following: English law is usually chosen to govern the main finance documentation (especially when the financing is provided on a syndicated basis and foreign financial institutions are involved). Having said this, the use of Russian law for the main finance documentation is growing, especially after the creation of the Russian standard loan documentation based on the Loan Market Association documentation in 2015 by one of the Russian banking associations, primarily for small club loans and bilateral deals.

A great deal of Russian target companies and businesses are held through Cyprus, resulting in the security documentation to be used in the acquisition finance deals being governed predominantly by Cypriot and Russian law. This may also affect the completions’ mechanics on both the M&A and financing parts of the transactions. 

Russian currency control rules should still be considered for any related settlements between the parties of the transaction (eg, requirements for bank accounts with a Russian bank, control of payments, etc).

Debt push-down structures may not necessarily work in Russia for various legal and tax reasons.


21. Describe the typical security structures in healthcare business combinations, including confirmation of any registration or notary fees in respect of the security documents.

The typical security structures include a combination of English, Cypriot and Russian law security (with other jurisdictions involved on a transaction-by-transaction basis). 

English law security (collateral) usually comprises corporate guarantees, security assignments, fixed and floating charges, etc, depending on the transaction structure.

Cypriot law is usually used for share security depending on the jurisdiction of the relevant holding companies. Its perfection is subject to local laws.

Russian law suretyships or guarantees provided by the Russian companies (no registration or notarisation is required).

Russian law share (participation interest) pledges over the shares in the Russian target companies are usually used (usually subject to registration or notarisation).

Russian security over other assets – mortgages over real estate, pledges of movables and contractual rights, pledges over bank accounts and account withdrawal arrangements with Russian account banks (often subject to registration or notarisation).

Financial assistance

22. Are there any financial assistance rules that arise in healthcare business combinations? 

There are no rules prohibiting financial assistance in Russia. However, the Russian parties must comply with the rules on interested party transactions – in the case of any intra-group financing or provision of security, such deals should be analysed and specifically approved as
interested party transactions by their boards of directors or shareholders (if applicable).

Price and consideration

23. What pricing and consideration structures are typical in healthcare business combinations?

Healthcare business acquisitions more often than not feature some form of a price adjustment. An earn-out structure bound to future financial performance of the target business is most common for acquisitions from management sellers with a significant gap between the parties’ valuations.

Enterprise value

24. How are healthcare-related businesses typically valued?

Valuations of healthcare businesses in Russia are generally similar to those accepted in most of the developed markets, subject to the local regulatory peculiarities, including Russian state regulation of prices for the relevant products or services and other local regulatory features.

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Typical issues in combinations

25. What are some of the typical tax issues in healthcare business combinations and to what extent do these typically drive structuring considerations? Are there certain considerations that stem from the tax status of a target?

A target, if licensed in Russia for medical activity, may benefit from a number of substantial tax incentives for the purpose of corporate income tax and VAT. 

Licensed medical companies may qualify for corporate income tax exemption if the following conditions are met:

  • the type of medical care is listed in Government Regulation No. 917 dated 10 November 2011;
  • 90 per cent of the total company income is associated with medical services;
  • the company has at least 15 employees, provided that the majority of them are certified medical staff; and
  • there are no operations with promissory notes or derivative financial instruments involved. Currently this tax benefit is valid until 2020, but there are legislative plans to extend it further.

A licensed target can be non VAT-able if it provides certain kinds of healthcare services including health resort treatment, outpatient and hospital care or realises medical goods such as essential medical items, goods for vision correction and disabled persons, prosthetic and orthopedic appliances. 

The exhaustive list of relevant services can be found in article 149(2) of the Russian Tax code and Government Regulations No. 132 dated 20 February 2001. The list of medical goods falling under preferential taxation is adopted by the Government Regulation No. 1042 dated 30 September 2015, which also provides an exemption of the listed medical goods from the import customs duty in Russia. 

Additionally, depending on the region where the target is located, some immovable property tax incentives may be granted to the target.

A target without a special licence may nevertheless apply VAT exemption or reduced VAT rate of 10 per cent instead of the standard rate of 20 per cent for medicines and medical products realisation (according to the Government Regulations No. 688 dated 15 September 2008). Those products are subject to special registration procedures.

Tax risks for healthcare businesses

26. What are the typical tax risks that are associated with healthcare businesses? What measures are normally taken to mitigate those typical tax risks in healthcare business combinations? 

Tax authorities may challenge tax benefits declared by the target during a period of three years preceding the year of combination. To avoid any potential disputes with tax authorities after the deal, it is crucial to provide detailed due diligence for justification of the target’s tax status and check compliance with all legal requirements. 

If the target is a medical company, then particular attention should be given to its licence as a general condition for VAT and corporate income tax exemption. For this purpose, the services rendered by the target should match those permitted under its license.

If a reorganisation entails the need to obtain a new licence, then subject to the conditions giving the right to receive benefits, licence reissuance during the tax period cannot lead to the loss of benefits.

In terms of VAT, the obligatory requirement for the target to qualify for VAT incentives is to provide separate accounting of operations that fall under VAT preferential taxation from those taxed at the standard rate (20 per cent).

Another issue is personal income tax, which is charged on the income paid by healthcare companies to medical practitioners. Owing to complexity and legal constraints, the respective agreements between healthcare companies and medical individuals should be properly transferred.

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Public relations and government policy

Public relations

27. How do the parties address the wider public relations issues in healthcare business combinations?

Normally the parties issue a press release to the general public. It briefly describes that the deal has been made and provides some key statements of the new business owner regarding further development of the business (eg, R&D, product portfolio increase, contribution to social care, etc).


28. How do parties address the wider political issues in healthcare business combinations?

Potential changes in policy or government are hardly predictable in Russia. Where possible, foreign investors include their right to pull out from the deal in case of certain events of a political nature (eg, significant changes in the reimbursement or public procurement policy, actions of the government triggering sanctions of other countries, etc).

This article was prepared for and first published by Lexology Getting The Deal Through in August 2019.

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Healthcare M&A Russia 2019
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