Top 10 Pivotal Factors for Successful Mergers and Acquisitions

As the healthcare landscape moves further down the tracks along the transformative shift towards accountable, value-based care, healthcare providers find themselves inundated with news and rumors of major players and competitors engaged in discussions surrounding acquisitions or affiliations.

From the potential merging of three sets of health plan giants, to private equity players venturing further into the health system (e.g., hospitals, imaging, and physician practice) and post-acute space, the changing climate is undeniable and may prove for many to be inescapable.

Healthcare executives are surveying industry change, their market position, and their ability to meet organization goals and mission as they evaluate opportunities while simultaneously protect the well-being of their own organization.

However, for a variety of factors, from operational to financial to cultural, not every consolidation is the right one.

Before savvy leaders dive headfirst into the current merger and acquisition frenzy, they need to take a measured step back and assess the following ten factors that will prove pivotal to a successful merger or affiliation.

1. Define your mission, vision, and objectives.

In a constantly evolving and unclear environment, it is critical to thoroughly articulate the ambitions of any significant change your organization is contemplating. Why is your organization considering this alliance, and will this arrangement help achieve desired goals?

The reasons for mergers are plenty. Acquiring economies of scale, achieving geographic expansion, increasing access points, and enhancing access to capital are among the primary motivations in the current transformative climate.

Gaining consensus among your board and executive leadership early will contribute to a unified search process, enhance communication, and align your key stakeholders.

2. Timing is everything – determine the right time.

In a period of high consolidation activity, it is easy to get wrapped up in the excitement. Do your organization’s current position and situation necessitate a move right now?

Many organizations rush to the negotiating table without fully assessing whether the timing is optimal, or if they are ready for the transition. Conversely, the market today does not look like the market did six months ago, nor will it look like the market six months from now. As the market evolves, so do options both available and unavailable to your organization.

Potential targets or acquirers may align with competitors, or market activity could force your organization’s hand to the point where consolidation is the only option. A keen awareness of your organizational strength and market position is paramount when evaluating potential maneuvers.

3. Know the market – what is your outlook for the future, and what is its effect on your organization?

The shift towards value-based payments and accountable care means that now more than ever healthcare providers are forming “tightly aligned” networks to reduce costs and improve the quality of patient care.

Are other major players expanding their population base through additional access points, developing accountable care organizations (“ACOs”) and exclusive contracting arrangements, and creating a full continuum of care into the post-acute arena? The organizations with critical mass are going to come out on top.

Failing to adequately assess your competitors and their situations could portend a situation where your affiliation options become limited and your market share eroded.

4. In a value-based environment, size matters. How can you increase your defined population?

As mentioned above, for thriving and financially sustainable providers, it will be crucial that they grow, fortify, and protect the defined population that they serve.

It is becoming increasingly crucial that organizations provide sufficient access points to coordinated provider networks through both traditional mediums (emergency departments and physician offices) as well as innovative entry point alternatives found in the new competitive provider environment that exists today (health plans, urgent care centers, m-health, and retail clinics).

Consider alternative points of care to acquire or affiliate with in order to expand access and improve the coordination of care for your population – your competition likely is.

5. Choose the right affiliation structure – there are more options than just mergers and acquisitions.

Today’s healthcare environment provides an increased number of innovative alignment options for organizations contemplating integration. Gone are the days where organizations needed to complete outright sales or mergers with full change-of-control.

Instead, many organizations are pursuing affiliations to meet organizational goals and strengthen financially, including joint ventures, clinically integrated networks, sales to real estate investment trusts, or joint operating agreements.

Affiliating can be an attractive option to maintaining a degree of organizational independence while propelling the organization’s mission and fulfilling its defined objectives. Just be clear that the affiliation structure will be the best option to meet your goals.

6. Evaluate cultural alignment to protect against breakdowns once the transaction is complete.

Easily the most overlooked aspect of any potential merger is the eventual fusion, and potential friction, of combining two organizational cultures. Post-transaction success requires more than diligent financial analysis and combined market share.

More and more transactions are stumbling out of the gates because leadership underestimated the difficulty of one or both organizations adopting new protocols and systems, blending the governing boards, or understanding management styles and philosophies.

Assessing the history, mission, and cultural aspects of each organization is imperative to develop the understanding required to construct the mutually beneficial and shared vision necessary to achieve the future entity’s operational efficiencies and full potential.

7. Ensure that both boards and communities are behind the transaction and mission.

Good communication is required to ensure as smooth a process as possible with any transaction. It is vital that all key parties, from the boards and medical staffs to employees and patients, have a firm grasp of why the organization is pursuing this action, and how they will benefit from it.

Achieving alignment and understanding among the community will confirm the necessary parties are in sync while addressing and relieving any anxieties the deal may foster.

8. Conduct effective due diligence to ensure that the efficiencies and business justifications support the transaction.

During the due diligence process, it will become clear how your potential partner is performing: their vision, goals, actions, and composition of the C-suite and board.

The due diligence process is the appropriate time to ask as many questions as possible; it is imperative that you get the answers you need.

A high frequency of meetings and discussions, particularly face-to-face interactions, and transparency with financial and quality data are strongly encouraged to generate the necessary levels of understanding to ensure the transaction remains compliant with antitrust legislation and that the market benefits desired and proposed are feasible.

9. Consider the partners’ “whole being” as an organization that can meet your needs.

As an organization, identify how future industry changes will impact your needs across the care continuum. This may include bundled payments, ACOs, clinical integration, patient-centered medical homes, ambulatory delivery sites, payment changes, access to capital, new care models, and health plans, etc.

Physician alignment models, recruitment, and research are also opportunities that should be addressed. Projecting future industry developments and the impact to your strategy and needs could put your organization ahead of the game in the years to come.

10. Once the merger is complete, execute the business plan of operational efficiencies (“BPOE”) to position your organization to achieve the gains that were the reason for the merger.

The BPOE serves as a great tool to define the financial, operational, and clinical opportunities that will be gained through the merger before it happens.

After the transaction is complete, use the BPOE to measure and manage progress on the implementation actions necessary to achieve the intended goals and efficiencies. These may include program and service consolidation, elimination of service duplication, and infrastructure integration. Theoretical synergies mean little without implementing and actualizing them.

The BPOE should serve as the blueprint to follow in order to propel your organization to enact the clinical, operational, and financial benefits that compelled the transaction in the first place.