by Tom Schramski, PhD, CMAA and Joshua Boynton, CMAA
There is quite a bit written about the failure of mergers and acquisition (M+A) activity, occasionally even competing with President Trump’s tweets. The reasons are as numerous as the transactions themselves, while the analyses tend to focus on sexy megadeals and the related personal intrigue of fractured family relationships (the sizzle that is apparently attractive in today’s deal world).
By comparison, a focus on what really drives value in lower middle market healthcare transactions is lacking. You don’t read about it in the statistics and you rarely hear a success story of how an organization built sustainable value over time, to the benefit of the owners, employees and customers. Fortunately, there are many success stories based on consistent strategies that healthcare entrepreneurs use to complete transactions:
Creating a practical vision – The better you know what you want to achieve, personally and professionally, the greater your chances of achieving it. What distinguishes the best healthcare companies from others is the ability to build significant alignment of management with that vision. The more practical the vision criteria, the easier to achieve alignment.
Translating the current/evolving healthcare marketplace – Understanding the current marketplace, from MCOs to value-based reimbursement is important, but what is most critical is translating this into likely impact on your organization and resulting opportunities presented. The translation leads to specific plans of action given various scenarios.
Considering right-sizing first – Before launching a M+A effort, successful healthcare companies look at making sure the wheat has been separated from the chaff and look thoughtfully at their current structure and talent. This review of their foundation for growth also includes the possibility of reorganizing and even divestiture.
Calculating resource parameters – What are your realistic financial and human resources you can commit over a period of time to a transaction? It is natural for any healthcare CEO to underestimate these resource requirements and then place an inordinate burden on existing operations in the process.
Engaging potential partners – While ideal partners may come your way, good deals almost always include researching the marketplace with careful attention to your ideal partner criteria. As senior management become more experienced in this process they learn that they will encounter a lot more “no” than “yes,” which is the natural manner in which a selection process becomes refined. Besides, it only takes “yes” one or two times for most successful searches.
Having qualified support in place – Whether an advisor, attorney, of tax expert, having experienced support for a potential transaction available is invaluable in the majority of deals. Not only does it increase confidence as negotiations proceed, it can help determine that a relationship should end sooner rather than later, saving time and money.
Planning for integration early in the game – Organizational integration of two or more entities is always harder than the transaction itself. Team effort to evaluate the integration process and true investment ROI no later than the signing of an LOI is common practice in positive healthcare transactions.
Evaluating the transaction itself – An honest evaluation of the transaction results occurs in good healthcare deals for understandable reasons – the company wants to know what worked and how to improve future performance, including the possibility of M+A activity.
Maximizing the potential for a good, or even great transaction, is a disciplined process. It not only increases the likelihood of success but send a message to your team – everyone’s time is valuable and let’s show that consideration in how we approach opportunity.