High Stakes

Jarrard M&A Spotlight Series Part 3: The Deal Killers

jarrard spotlight series

A four-part series on M&A featuring advice from healthcare dealmakers

Part 3: The Deal Killers

By Anne Hancock Toomey

Consider this: One in four hospital transactions fails after a letter of intent, according to Becker’s Hospital Review.

Given the time, energy and money that goes into the transaction process, this can be frustrating, if not devastating, to a hospital or health system.

So, who or what is to blame?  Is it valuation issues? Regulatory hurdles? Capital constraints? Cultural differences? Money? Politics?

We’ve asked our panel of healthcare M&A experts to weigh in.

This week’s question for our panel:

“What are the most common factors that lead to deals failing?”

George Bishop
Partner, Waller Lansden Dortch & Davis

In my experience, deals succeed more often than fail. When they do fail, it is often because more than one entity/organization has an interest in the health system which is a party to the transaction and the interests of those entities/organizations are in conflict. An example would be a situation in which a health system is being sold and a public hospital authority and a nonprofit corporation – which both have an ownership interest in the system – cannot agree on the use of the sale proceeds.


Jay Harris
Partner, King & Spalding


Jeff Spigel
Partner, King & Spalding

While there is a great deal of rhetoric that the Trump administration is business friendly, it is a mistake to view this as a sign that the FTC and DOJ will let healthcare deals go through without any scrutiny.  Even though the lawsuits were filed before President Trump was elected, DOJ continued to take aggressive action to block the Anthem-Cigna and Aetna-Humana mergers.  Similarly, Maureen K. Ohlhausen, who is the Acting Chair of the FTC and was previously a commissioner at the FTC under President Obama, voted in favor of the FTC’s pursuit of blocking hospital mergers in Pennsylvania, Illinois and West Virginia, and has stated that the FTC will continue its scrutiny of healthcare mergers

Keep these three cardinal rules in mind:

  • Be Careful About Creating Documents (e.g., emails, management and board presentations, third party reports).
  • It’s About Improving Quality, Expanding Access, Keeping Healthcare Local and Lowering the Overall Cost of Healthcare Delivery.
  • Don’t Be Bashful About the Transaction’s Benefits.
  • Obtain Support from Patients, Physicians, Employers, Employees, Local and State Governments and Commercial Insurers.

All FTC provider challenges have been predicated on factors that that did not follow these rules.  They had documents that supported FTC allegations that the transaction’s rationale was driven, in part, by the need to increase commercial reimbursements.  These allegations were supported by complaints by commercial insurers that the transaction would create a “must have” provider that could dictate above market reimbursement levels.  Finally, there was an absence of any compelling evidence that the transaction would increase quality/lower costs.


Eb LeMaster
Managing Director, Ponder & Co.

The biggest failures occur when physicians are not heard. It is a balancing act in terms of how and when to include medical staff in discussions, but the biggest failures occur when important components of the medical staff have not bought and depart shortly after closing.


Bart Walker
Partner, McGuireWoods

I look to culture fit – especially with physician transactions. The ones I have seen fall apart are ones where there was not a great culture fit between the two organizations.


Angela Humphreys
Chair of the Healthcare Practice Group, Bass Berry & Sims

In terms of factors that make deals fail, time kills deals.  It is important to have a streamlined diligence process and timeline and stick to it.


Joshua Nemzoff
President, Nemzoff & Co.

The deals that fail are the ones where, in their haste to get the deal done, the buyer either gives away that ability in the structure of the deal, or shoots the horse in the starting gate by announcing that they are not going to have any layoffs, they are not closing any services, and they are keeping the management team of the seller intact.

Part 4 of our M&A Spotlight Series will appear Thursday, August 3, 2017. In it, our experts will answer: “When considering transactions, how can health systems best ensure their stability and longevity moving forward?


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