Medical laboratory due diligence

Due diligence on a medical laboratory has one job the equivalent process for most small businesses does not: confirming, with documentary proof rather than assurance, that the operating licence, the accreditation and the referral relationships driving revenue will actually survive the change of ownership. A buyer who treats a lab’s diligence checklist as a generic small-business checklist with a few extra medical questions bolted on is missing the point — in this sub-sector the licence and the contracts sit above the financial statements in importance, because a lab with clean books and an unapproved licence transfer is not a functioning acquisition at all.

The licence file

Request the facility’s current operating licence, any correspondence with the provincial regulator about renewal or compliance history, and — critically — written confirmation of what the transfer-approval process requires for this specific transaction, including any timeline the regulator has indicated. In a capped-licence province, ask directly whether the regulator has ever declined a transfer application in comparable circumstances and why; the answer, or the absence of one, tells a buyer a great deal about how much risk sits in this single document.

Accreditation and quality-management records

Lab accreditation is a separate, ongoing requirement layered on top of the operating licence, and the file to request includes the current accreditation certificate, the most recent quality-management-system review, and any open corrective-action items. A finding here does not automatically kill a deal — most labs have addressed a minor deficiency at some point — but an open item that has been outstanding for an extended period, or a pattern of repeated findings in the same area, signals an operational problem that a change of ownership alone will not fix.

Referral and hospital-contract review

Physician requisition relationships rarely exist as formal contracts, so diligence here means reviewing referral-volume data by source rather than a stack of agreements — specifically, how concentrated volume is among the top referring accounts and whether any single relationship depends on a personal connection to the departing owner. Any hospital contract, by contrast, should be reviewed as a formal document for a change-of-control or assignment clause; a contract that requires the hospital’s consent to assign, with no indication that consent has been sought, is one of the more common findings that stalls a lab acquisition at the eleventh hour.

Specimen-collection site leases

A lab’s value often depends on a network of specimen-collection sites rather than the core facility alone, and each of those sites typically carries its own lease and, in many provinces, its own site-specific licensing or listing tied to the facility licence. Request the lease for every collection site individually, checking for an assignment or consent-to-transfer clause the same way a buyer would review any commercial lease, and confirm whether each site’s inclusion under the facility licence needs its own separate notification or approval when ownership changes. A buyer who reviews the core facility licence closely but treats the collection-site network as an afterthought can find, after closing, that one or two sites cannot legally continue operating under the new ownership without a fix the seller never mentioned.

Findings that commonly stop a deal

• The province indicates it will not approve a transfer to the proposed buyer, or will only approve it with conditions the buyer cannot meet — this ends the deal as structured, not just delays it
• The hospital contract requires consent to assign and the hospital signals it will not provide it, which removes a material share of the volume the price was based on
• An accreditation deficiency is found to be long-standing rather than newly identified, suggesting the quality-management gap is systemic
• Referral volume turns out to be far more concentrated than represented, with the top account or two accounting for a disproportionate share of revenue

The employment and corporate layers underneath

Beyond the lab-specific file, standard diligence still applies and still matters: confirming the corporation’s good standing, checking for outstanding CRA debts or registered security interests against the business, and reviewing employment arrangements for lab staff, including whether any are unionized or covered by a collective structure. Because privacy law treats health information with particular seriousness, a buyer should also confirm how patient and specimen data is currently handled and secured, and what obligations transfer with it — this is not a formality layered on top of the medical-specific review, it is part of the same review.