Jarrard M&A Spotlight Series Part 4: Positioned for Long-Term Stability
A four-part series on M&A featuring advice from healthcare dealmakers
Part 4: Positioned for Long-Term Stability
By Anne Hancock Toomey
Over the course of this series, we’ve explored the best way for leaders to approach their M&A strategy and known deal-killers to avoid.
In this final post in our M&A Spotlight series, dealmakers tell how to ensure that a partnership lasts for the long-term. Our experts explain how boosting community involvement, outlining strategic goals and working together to improve quality all help solidify a good partnership.
Big thanks to these friends and colleagues in the industry for sharing their time and expertise. Each one is battle-tested with years of experience helping hospital leaders choose the right path for the future.
Our final question to our panel:
“When considering transactions, how can health systems best ensure their stability and longevity moving forward?”
There is a new body of research emerging that consolidation among hospital companies results in quality improvements. Standardizing clinical protocols, sharing best practices, and coordinating patient care are unusually powerful in a fragmented market.
This American Hospital Association White Paper is a good resource for the way in which some are attempting to improve the cost / quality equation. Evaluating the desirability of a transaction often requires honest and sometimes difficult assessment of one’s weaknesses. There seems to be a hesitancy for community Boards to openly assess shortcomings. This is particularly true when related to measuring clinical quality. This paper does a nice job at depersonalizing this subject and analyzing the impact of M&A broadly.
Pick a partner to whom you are very important strategically and who has, or is creating, a strong regional presence.
In a transaction, you can get strong commitments in terms of capital, services, people and community support, but long-term, the partner’s focus on your community and your hospital and facilities will depend on how strong they are in that region. Healthcare is regional, and even as winds change, being part of a system that is #1 or #2 in the region significantly raises the odds of long-term viability and lowers the risk of bring orphaned or not being a critical focus.
Health systems will need to have access to capital, economies of scale, strong payor relationships, exceptional human capital and expertise and large networks, among others. Most systems will not excel in each of these areas, and it will be important to find the right strategic partner that will help support areas of weakness and enhance those areas of strength.
The transaction does not end at closing. The integration process is critical to the short term and long term success of the deal.
The best way for a health system which has decided to pursue a strategic transaction to ensure its stability and longevity is to choose a well-capitalized partner whose long-term interests are aligned with those of the organization currently operating the system and the community it serves.
It’s important to understand your position in your markets and what resources you will be required to bring to bear on a go-forward basis – whether it be capital expenditures, expansion of service lines or strengthening of physician relationships. Having adequate capital and executive talent and strong physician relationships will chart your course to success.
Before the deal is ever started, make sure that there is a very strong strategic justification for the deal and that the economics work. There are cheap deals that make no strategic sense and there are strategic deals that are too expensive to make any economic sense.
Have Our Thinking Delivered to Your Inbox »