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M&As: How to structure a successful acquisition

Recent peak years for the value of mergers and acquisitions have included 1999, which was surpassed in 2007, which was surpassed in 2015.  The author, a professor at the University of Toronto, states that the vast majority – from 70 percent to 90 percent – of acquisitions are failures.  He actually uses the term “abysmal failures.”  In order to make an acquisition more likely to succeed, Professor Martin maintains that the acquirer should analyze what it is that they have to bring to the entity being acquired.  These factors typically include:

  • Growth capital
  • Managerial oversight
  • Transfer of valuable skills
  • Sharing of valuable capabilities

Analysis of a potential acquisition through a GIVING lens – what can we give to the entity being acquired – is a strong strategic logic and more likely to determine value that can be derived from a deal.

Source: Martin, R.L. (2016, June). M&A: The one thing you need to get right. Harvard Business Review, 94(6), 43-48.  Click here: https://hbr.org/2016/06/ma-the-one-thing-you-need-to-get-right Posted by AHA Resource Center (312) 422-2050, rc@aha.org

 

 

 

Top 10 Issues Facing Community Hospital CEOs

Last month the American College of Healthcare Executives released the results of its annual CEO survey on the top concerns confronting community hospitals. The most pressing concerns of the CEOs in 2015 were:

  1. Financial challenges
  2. Patient safety and quality
  3. Governmental mandates
  4. Personnel shortages
  5. Patient satisfaction
  6. Physician-hospital relations
  7. Access to care
  8. Population health management
  9. Technology
  10. Reorganization [mergers, acquisitions, restructuring, partnerships]

Financial challenges has remained the top concern when compared to 2013 and 2014 surveys. Transition from volume to value, Medicaid reimbursement, bad debt, and increasing costs were among the financial challenges most often mentioned. Engaging physicians in improving the culture of safety/quality and in reducing clinically unnecessary tests and procedures were top concerns related to patient safety and quality.

Access to care and reorganization were new to the top 10 list in 2015, and personnel shortages rose to 4th place on the list, up from the 10th spot in 2014.

Source: Top issues confronting hospitals in 2015. American College of Healthcare Executives, Feb. 2, 1016. http://ache.org/pubs/research/ceoissues.cfm [press release: http://ache.org/pubs/Releases/2016/top-issues-confronting-hospitals-2015.cfm]

Posted by AHA Resource Center (312) 422-2050, rc@aha.org

MERGERS: Consolidation of hospital clinical services has the most potential for cost savings

After a merger or acquisition involving hospitals comes the hard work of integrating and consolidating the legacy organizations.  Opportunities for cost savings can be found in these areas, based on the experience of The Camden Group:

  • Administrative functions (20 percent)
  • Support and infrastructure (25 percent)
  • Clinical areas (55 percent)

Oftentimes, however, the sheer difficulty of aligning the stakeholders tends to result in a concentration on change in only the administrative, support, and infrastructure areas.  This article describes a planning process called BPOE (business plan of operational efficiencies) which is a “bottom-up” approach that can be used to generate cost savings ideas.

Source: Klar, B., Shufelt, G.P. (2015, June). Charting a path to efficiencies following a merger. HFM. Healthcare Financial Management, 69(6), 63-69.  http://www.hfma.org/Content.aspx?id=31008  Posted by AHA Resource Center (312) 422-2050, rc@aha.org

Health Care Services Grew in M&A Deal Volume and Value in 2014

Mergers and acquisitions of health care providers increased in both deal volume and value in 2014 according to the latest data from Irving Levin Associates.

Except for the laboratories, MRI and dialysis sector, all health service sectors saw M&A growth in 2014 compared to the previous year. These sectors included behavioral health care, home health and hospice, hospitals, managed care, physician medical groups, and rehabilitation and other services. Overall, there were 752 transactions [18% annual increase] for the year, valued at $62 billion compared to $52.7 billion in 2013.

The hospital sector saw 100 deal transactions in 2014, a 14% increase over 2013. However, the number of hospitals involved in the deals fell to 178 in 2014, likely due to two big mergers that occurred in 2013 [Tenet Healthcare/Vanguard Systems and Community Health Systems/Health Management Associates].

M&A in the physician medical group sector grew to almost $3.2 billion in 2014.

Sources:

Newly published report: 2014 health care services M&A market sees growth in deal volume and value of transactions, according to Irving Levin Associates. Business Wire news release, Mar. 31, 2015. http://www.businesswire.com/news/home/20150331006369/en/Newly-Published-Report-2014-Health-Care-Services#.VRwWILGZGSo

2015 Health care services acquisition report. 21st ed. Irving Levin Associates, 2015. Purchase details: http://www.levinassociates.com/hardescription

Chart 2.9: Announced hospital mergers and acquisitions, 1998-2013. In. Trendwatch Chartbook, American Hospital Association, 2014. http://www.aha.org/research/reports/tw/chartbook/2014/chart2-9.pdf

Posted by AHA Resource Center (312) 422-2050, rc@aha.org

Hospitals slowing in physician practice acquisitions?

The deals practice at PricewaterhouseCoopers provides a periodic report on the volume of mergers and acquisitions in the health care sector.  In this report on the First Quarter 2014, PwC notes that the number of hospital mergers and acquisitions is experiencing a short-term slowdown.  This may be related to the large-scale deals in 2013 involving Tenet and Community Health Systems.  PwC states that “our outlook for hospital deal activity in 2014 continues to be optimistic as the impetus for greater alignment and size remains unchanged” (page 3).  Hospitals are said to be endorsing the “bigger is better” philosophy.

PwC also reports interesting comparative statistics related to physician practice acquisitions by hospitals and health systems.

HOSPITAL & HEALTH SYSTEM acquisition of physician practices accounted for:

  • 51% of all practice acquisitions in 2011
  • 14% of all practice acquisitions in 2013

PwC expects this trend of a greater percentage of acquisitions by physician practice management companies to continue.

Source: PricewaterhouseCoopers.  Q1 2014 US Health Services Deals Insights, May 2014.  Click here: http://www.pwc.com/us/en/healthcare/publications/healthcare-m-a-insights.jhtml Posted by AHA Resource Center (312) 422-2050, rc@aha.org

 

MERGERS: How to merge teaching hospitals successfully

Insights drawn from the mergers of teaching hospitals that resulted in the creation of the University of Pennsylvania Health System, Partners Healthcare (Boston), and New York-Presbyterian Hospital are discussed in this perspective article by three leading physicians who were involved.  They note that there was an initial wave of academic medical center merger discussions from 1993 to 1998 — and that interest is rising again today.  The success factors are categorized as follows:

  • “Leadership and trust” (Who will be in charge?  What will be their roles?  Will there be a holding company?  A single board with fiduciary responsibilities?  Do the trustees display vision and commitment to the merger?)
  • “Managing uncertainty” (Is there clarity and transparency of purpose?)
  • “Medical staff stability” (Typically the most volatile of issues.)
  • “Bridging culture” (Is there respect among the legacy organizations?  How similar is the management style and governance heritage?  How quickly will the integration be able to occur?

Source: Thier, S.O., Kelley, W.N., and others.  Success factors in merging teaching hospitals.  Academic Medicine;89(2):219-223, Feb. 2014.  Click here to access publisher’s website: http://journals.lww.com/academicmedicine/Abstract/2014/02000/Success_Factors_in_Merging_Teaching_Hospitals.13.aspx 

Posted by AHA Resource Center (312) 422-2050, rc@aha.org

Hospital merger and acquisition trends, US 2006 to 2012

Number of M&A Deals Involving Hospitals

  •   57  2006
  •   58  2007
  •   60  2008
  •   52  2009
  •   72  2010
  •   90  2011
  • 100  2012

Number of Hospitals Involved in These Deals

  • 249  2006
  • 149  2007
  •   78  2008
  •  80  2009
  • 125  2010
  • 156  2011
  • 247  2012

Source: Hospital inpatient and outpatient services, In: Medicare Payment Policy: Report to the Congress.  Washington, DC: Medicare Payment Advisory Commission, Mar. 2014, Chapt. 3, p. 59.  Click here for text: www.medpac.gov/documents/Mar14_entirereport.pdf Posted by AHA Resource Center (312) 422-2050, rc@aha.org

Ultimate source: Irving Levin Associates