AHCA: Survival Tactics

Anatomy of a Merger

There is no such thing a Healthcare merger (and here’s why)

With the backdrop of the AHCA, and the plan of action going forward for insurers, M&A consultants Vertess present an interesting dialogue on how and when mergers actually make sense. Visit http://www.vertess.com/

TUCSON, Ariz., May 10, 2017 /PRNewswire/ — The House of Representatives just passed the American Health Care Act (AHCA); there are increasing questions about Medicaid and block grants; downward pressure on reimbursement rates is growing; and the pace of innovation is mind blowing.

How do healthcare executives, including nonprofit leaders, get their heads around all of this? The solution many choose is “merger.” Why not combine forces with another company and have a partner to help you face all this uncertainty?
Unfortunately, this enthusiasm for mergers may be based on the misapprehension that such a thing as a merger even exists, in the healthcare industry or anywhere else for that matter.

Mergers & Marriages

The ideal merger is supposed to bring both parties together to create a new identity and structure with (perhaps) a modest sacrifice of brand and mission along the way. Thus defined, a successful merger is like a successful marriage.

However, successful mergers may be less common than successful marriages for several key reasons:

  1. Turf Struggles
    In a merger, one party tends to dominate the relationship. While missions and cultures may be very compatible, one organization typically moves to the foreground.
  2. Misalignment
    In a merger, there is no such thing as perfect alignment between the two organizations. Compromise necessarily occurs through the integration process.
  3. Redundancy
    Regardless of the intended “synergy”, the new organization won’t need as many managers. This can mean layoffs, disruption, and sometimes an exodus of disgruntled talent.
  4. More Redundancy
    The new organization rarely needs duplicate C-level executives.
  5. Director Reorganization
    The Board of Directors of the merged organization is rarely of a 50/50 composition.
Why not combine forces with another company and have a partner to help you face all this uncertainty?

Ideally a merger results in a single, more diverse company with strong alignment of employees around mission and vision. Those that succeed focus on integration before the deal is closed. Most mergers turn into “absorptions” where one entity assumes, and the other faction cedes, control. When merging healthcare companies recognize in advance this there’s a greater likelihood of a good outcome for the organization.

What do you really want to accomplish?

Does this mean you should NEVER consider a merger? Quite the opposite. With the right guidance, a successful merger is possible. However, we always start any “should we consider a merger” discussion with a disarmingly simple question: What do you really want to accomplish?

If the goal is to manage uncertainty or even distress, mergers and absorptions can be an excellent choice to build a more capable organization, especially in the nonprofit sector. The current healthcare environment favors consolidation and size as a hedge against reimbursement turbulence.

If the goal is to grow quickly or plan for a transition, acquisition and sale are often better vehicles for diversification or an exit. Acquisitions, in particular, tend to be simpler than mergers because there is little confusion about who is in charge.
Clarity about organizational vision and the discipline to implement a merger or sale lay the foundation for a positive future. Knowing your company well and being able to say “no” as well as “yes” will greatly increase your odds of a good outcome.

The same as in a successful marriage.

 

 

 

About VERTESS
VERTESS is an international healthcare-focused M + A advisory firm with expertise in diverse healthcare and human service verticals, ranging from behavioral health and I/DD to healthcare IT, DME, home care/hospice, urgent care, life sciences and other specialized services and products.