An HFMA Healthcare Financial Pulse Resource
Three strategies can help hospitals and healthcare systems best position themselves for merger or acquisition success.
1. Know What You Want
To best identify the value of potential merger and acquisition opportunities, buyers and sellers should recognize what is important from each other’s perspective.
Buyers are seeking hospitals with a strong community profile, a healthy market presence, and the opportunity to grow, notes Kit Kamholz, partner of Kaufman Hall, an independent consulting firm that provides integrated strategic, capital, and financial advisory services and related management software to healthcare organizations nationwide.
“An organization that has a balance sheet that is in decent shape and that doesn’t have a huge capital need would be one that is most attractive from the buyer’s perspective,” he says, noting that in many ways these qualities aren’t that different from what community hospitals are seeking in buyers themselves.
“If I were in a community hospital’s shoes looking for an ideal buyer, I would seek an organization that is well-capitalized, has a very strong balance sheet, and a high credit rating.”
According to Kamholz, other qualities that make an organization attractive as a buyer are a significant brand and presence in a proximate marketplace; solid infrastructure capabilities around back-office operations; and strong physician relationships supported by the necessary technology and business platforms.
2. Seek Clarity Around Specific Objectives
According to Mark Grube, a partner who leads Kaufman Hall’s integrated strategic advisory practice, it is critical for both parties to come to the table with their goals clearly in mind.
“It really comes down to identifying what the success requirements are for the partner-seeking organization and then evaluating how well a particular partner is able to fulfill those success requirements,” he says, describing how one recent client conducted such an evaluation.
“As leadership assessed the organization’s future, it determined that their small system wasn’t likely to be able to fulfill those success requirements very effectively on its own,” he says. “The organization needed a partner, and that really became the basis of the exploration with different potential partners. An evaluation of which partner would best be able to help the organization achieve its most important objectives ensued.”
Sometimes, this process of reflection can be challenging.
“You have to honestly assess where you are,” Grube says. “You have to have clear-eyed recognition and be willing to look at this in a really logical and objective fashion without getting caught up in emotional issues, which easily occur.”
His advice: Clearly articulate the organization’s specific objectives at the start. “Then identify the widest-possible range of potential partners and evaluate each according to its track record on delivering those objectives.”
This evaluation should include visiting other sites that recently partnered with the organizations under consideration and meeting with management team leaders and current and former board members.
“Ask them, ‘How has the partnership been going?’” Grube said. “Is your partner delivering what they said they were going to deliver?”
3. Document, Document, Document
It’s important to document all expectations and responsibilities--from capital commitments to performance requirements--before a merger is complete.
“The vast majority of transactions end up accomplishing the goals and objectives that were established for the partnership,” says Kamholz. “But will every one be a home run?”
Discussion and documentation of actions expected during and after the merger best ensures that both organizations sign an agreement for a good-fit partnership that survives into the future.