The merger news in the health and human service field continues. Here’s just a few of the combinations we’ve reported on in the past quarter:
- Perimeter Healthcare Acquires WoodRidge Behavioral Care
- FTC Wins Appeal To Halt Penn State Hershey/Pinnacle Health Merger
- Harris’ Healthcare Group Acquires CoCENTRIX Pro-Filer & Care Management Platform
- Kindred Completes Acquisition Of State Of Arkansas’ Home Health Operations
- Magellan Health Completes Acquisition Of Armed Forces Services Corporation; Ramping Up Behavioral Health Expansion For Military
- Providence St. Joseph Health Merger Creates $100 Million Mental Health Initiative
- Providence Service Corporation Sells Majority Share Of Matrix Medical Network To Frazier Healthcare
- UnitedHealthcare To Acquire Non-Profit Rocky Mountain Health Plans
How often are mergers and acquisitions successful? Short answer, not often. In recent years, studies have shown mergers to have a high failure rate. A KPMG study found that mergers failed between 50% and 85% of the time, and failed to increase shareholder returns 83% of the time (see Why Mergers Fail). A Harvard Business Review report found that failure rate to be even higher, with mergers failing 70% to 90% of the time (see Why Do Up To 90% Of Mergers And Acquisitions Fail?).
Increasing the chances of success depends on two factors. One is the right management of the newly-merged organization. I recently wrote about the perspectives of “merger expert” Mike Mutka, Relias Learning chief strategy officer, specifically how organizations can build and maintain a positive, high-performing culture during periods of high growth (see Making ‘High Growth’ Work For Your Organization). That advice boiled down to repeatedly assessing your organizational health, measuring your performance, managing with those measurements, and improving communication with better meetings.
The other factor is picking the right organization. How do that? “Due diligence” is the answer, and it’s simply all the steps your organization should take to investigate, understand, and satisfy any legal requirements associated with buying or selling another organization. But what’s written on paper for due diligence is one thing. When you talk with someone who has been through the process, you get a whole new perspective. That was the focus of session, Best Practice Approaches To Mergers & Acquisitions: A How To Guide, led by OPEN MINDS Senior Associate Joe Naughton-Travers, Ed.M., and featuring Peggy Terhune, Ph.D., Chief Executive Officer of Monarch, a non-profit based in Albemarle, North Carolina, that serves consumers with intellectual/developmental disabilities, mental illness, and substance use issues.
Monarch provides statewide services and contracts with seven managed care organizations along with various insurance companies, and state and local governments. In 2015, it served more than 32,000 consumers and had an operating budget of $85 million. Dr. Terhune said she’s learned plenty of lessons from 24 different mergers that Monarch has taken part in, and she shared several of those with attendees. Mergers can produce many positive results for your organization, but they are not without challenges – everything from culture clashes, to financial difficulties, to operational issues. “It’s amazing, the number of organizations I have taken over that provided inadequate, inept, and delivered terrible services, though of course some were wonderful.” Dr. Terhune shared.
Her advice for any organization looking to acquire another? Do your homework before you move forward with a merger, and pay special attention to your due diligence process. Specifically, Dr. Terhune outlined several key issues to keep an eye on:
Lack of information for due diligence: Sometimes the information you need to proceed with a merger either isn’t available, or isn’t a good reflection of the health of the business. Consider adding an “out” clause to your contract in case you get into the deal and realize you had faulty information, and thus the situation isn’t right. And remember, due diligence doesn’t stop once you decide to pursue the merger. Pay attention to your contract language and include clauses for every situation. For more, read Thinking Of A Merger Or Acquisition? Five Key Questions and How Do You Pick The Right ‘Partner’?.
Cultural values: Combining cultures takes work. From the big stuff, like mission and treatment philosophies, down to the small stuff, like how you handle staff meetings and break times. This will be a continuous evolution, but Dr. Terhune found that it’s best to leave your own current staff at the new site to guide the process. Take a look at M&A ‘Tips, Tricks & Advice’ and Succession Planning & The Merger Issue – Thoughts From Executives Who Have Been There for more information.
Board involvement: A decision needs to be made up front about how intensive your board’s involvement in the merger process should be. Boards have the potential to derail a merger if they aren’t comfortable, so take the time up-front to explain and inform them about why this is the best decision for your organization. For more, check out Getting A Board On Board, Keeping Your Board “On Board,” and Managing Your Boards Of Directors: Strategic Advice For CEOs.
Leadership involvement: What about the other company’s governance and leadership? It’s never pleasant to remove another organization’s leaders, but there needs to be a concerted effort to either find a place for that leadership in your organization or move in another direction. You cannot have two executive teams or two chief executive officers. You need clear leadership at the outset to set an example to for all staff. For more, see Planning To Buy Another Organization?