Merger and Acquisition Analysis | Finding the Right Partner(s) in 2020 and 2021
Stephen C. Hanson, FACHE, Partner, CEO Advisory Network
What is the best strategy for evaluating a potential merger or acquisition in the new normal of COVID-19?
As we continue through these challenging times of pandemic, economic turmoil and racial tension, it is not completely clear what the future will bring. What is clear is that health, both public health and health delivery, will be fundamentally altered. Healthcare organizations will be seeking larger scale. Larger health systems, insurers, large tech companies, and private equity will be looking for smaller hospitals and health systems as well as private physician groups to merge with or acquire.
Certainly, for smaller to mid-sized health systems and physician groups, there is the economic reality of needing larger balance sheets to regain financial footing. These organizations need now to examine potential larger entities with which to consider engagement. While the reality of COVID-19 continues as of this writing, separate resources focusing specifically on future partnering need to be dedicated.
The first question is: do we need to merge with/be acquired or are there other mechanisms to gain scale?
The following criteria should then be taken into account when studying all potential merger or other partners for the organization:
For small to mid-sized hospitals and health systems and private physician practices, a formal process incorporating management, governance and physicians needs to occur. The process should ask and answer these key questions for all potential larger parties in the immediately foreseeable future.
The opportunities can focus on three potential scenarios:
Robust implementation of this process will result in a prioritized list of a few larger entities which to approach initially. Larger organizations are more likely to have available resources in studying the potential for smaller partners and the main focus would on the merger/acquisition scenario. but the seven questions remain the same.
How will affiliation with potential smaller parties improve the larger entities to meet the future challenges addressed in the questions? Even on the financial question, what will involvement with each potential party impact the balance sheet? The larger entities also need to develop a prioritized list and begin to approach the smaller organizations with the greatest potential. However additional external resources may be needed even for them.
The eight Partners of the CEO Advisory Network have collectively been through over 100 mergers and acquisitions/sales involving hospitals, physician groups, long term care, health plans. They can guide this exploratory process and work on the initial approach to those larger organizations which present the most potential for smaller health systems/groups. Conversely, they can assist the larger organizations on the best smaller partners going forward.
The pandemic has suddenly brought the future into health and healthcare. It is imperative that progressive organizations of all sizes take the lead during this unprecedented time!
To speak with Steve Hanson, Partner, about mergers and acquisitions contact him today at Steve.Hanson@CEOAdvisoryNetwork.com
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