How do you know if your organization doesn’t have the resources (financial resources, executive talent, access to markets, etc.) to be sustainable in the future? This is a big question in strategy development – when executive teams take a cold, hard look at where they need to be in the future and what it takes to get there.
But, if you know where you need to go and don’t have the resources to get there, what do you do? There are three major options:
#1 – Collaboration with other organizations to pool your resources – This is a commonly considered option, but is rarely executed well enough to obtain the necessary financial benefits. The most fruitful models often include combining key components of administrative and clinical oversight options in order to reduce costs (see 10 Keys To Successful Collaboration).
#2 – Acquiring or merging with an organization with the “assets” you need – This option can be highly successful if the fit is right and the integration of the two organizations is well planned and executed (see Thinking Of A Merger Or Acquisition? Five Key Questions and How Do You Pick The Right ‘Partner’?).
#3 – Being acquired by another organization – This third option is usually the last one considered. The unspoken understanding is that it is OK to acquire another organization, but it’s not OK to be acquired (see Collaboration Model – The LAST Decision You Should Make).
Why the hesitance to consider being acquired? The questions are many. What about our “identity” and history as an organization? What will our CEO do and will she be in charge of the combined organization? What about the board of directors? Will we have more seats to control the board and the organizational direction? (see Succession Planning & The Merger Issue – Thoughts From Executives Who Have Been There ).
But, the reality is that in a changing and increasingly competitive field, changing sustainability models are causing many health and human service organizations to fail, literally (see ‘Surprise!’ A Word You Don’t Want To Hear From Your CFO and Can You Tell If Your Organization Is On The Financial Brink?). And being acquired is an option that can provide considerable advantages. That was the topic of the recent session at The 2016 OPEN MINDS Strategy & Innovation Institute, A Guide To Being Acquired: Why Becoming Part Of A Larger Organization May Be The Right Move, featuring Jonathan Evans, Chief Executive Officer, Safe Harbor Behavioral Health; Anne Tyree, Vice President, Marketing & Business Development, Centerstone of Illinois; and Reverend Ben Marsh, Board Member, Monarch & Friends of Club Horizon.
Mr. Evans started the day with a case study of how a successful organization – Erie-based outpatient mental health clinic, Safe Harbor Behavioral Health – decided that being acquired was a positive step toward continued sustainability in a highly volatile market. He noted, “Two and half years ago we were in the best financial position we’d ever been in, making a profit, and we had the data to tell us where we were. We had leverage with the private payers because we have access to the quality care they need. We have something of immense value in health care right now, and there are people out there that want to buy what we have to offer.”
Safe Harbor eventually affiliated with the University of Pittsburgh Medical Center subsidiary, UPMC Hamot. As part of the transaction, they received a ten-year, $4 million commitment ($1 million up front, with $300,000 per year for the next ten years), with a “new” board that was a majority of the original Safe Harbor Board (see UPMC Hamot & Safe Harbor Complete Affiliation). The key to making this happen, according to Mr. Evans, was thorough due diligence up front that included a clear understanding of both the financials and the culture of potential buyers; and a commitment to “changing gears” on how to “get business done” when you combine with another larger organization.
Ms. Tyree was originally with the $10 million, community-based mental health center, WellSpring Resources. The executives at Wellspring decided on their need to merge from a different angle – the introduction of managed care in Illinois. This change in the market landscape presented environmental challenges that WellSpring was not positioned to handle. Most notably, the organization wasn’t large enough to attract managed care contracting opportunities, and was subsequently missing out on funding opportunities with a broad, statewide focus.
After failing to reach the desired $25 million by acquiring smaller organizations, WellSpring switched gears and approached Centerstone (see Centerstone Merges With WellSpring Resources). Ms. Tyree noted, “Some larger organizations approached us, but we wanted and needed a strong partner with the right culture, that valued behavioral health. Culture is important, because all the minutia of your organization must be reworked.” The key to making this happen, according to Ms. Tyree, is strong collaboration between partners, built on shared mission, values, and vision.
Reverend Marsh wrapped up the session with a look at Monarch’s acquisition of Club Horizon – a psychosocial rehabilitation (PSR) program that has earned the Clubhouse Accreditation from Clubhouse International. This model of rehabilitation promotes recovery, full community integration, and improved quality of life for persons who have mental health conditions that seriously impair functioning (for more on this model, check out What is a Clubhouse?). Before joining with Monarch, Club Horizon had a $300,000 to $500,000 annual budget largely funded by Medicaid unit cost reimbursement (UCR) funding.
The solution was to find an organization that could acquire the club, while providing the necessary vision and mission for providing a broad spectrum of services for consumers with I/DD and mental health issues. Reverend Marsh described this as an organization where, “The bottom line supports the vision, not the other way around.” They found their “home” in being acquired by Monarch.
These case studies provide examples of how gaining scale can be successfully achieved by acquiring, merging, or being acquired. For more on mergers and acquisitions, check out these resources from the OPEN MINDS Industry Library.
- Unscrambling The Egg: A New Question For M&A
- Is $400 Million The Number?
- Mergers As A Succession Planning Strategy
- In Mergers & Collaborations, Don’t Forget The Tech Plan
- In Non-Profit Mergers, People Trump Positioning
- One More ‘People Factor’ In Non-Profit Mergers
And for even more, join the OPEN MINDS team on September 21 at The 2016 Executive Leadership Retreat for session, “The Strategic Advantages & Challenges Of Mergers & Acquisitions.”