Is a merger or acquisition the right tactic to achieve your strategic goals? That is the $64 question (to use a very old catch phrase) – or the $400 million question if you think that the requirements for economies of scale in health and human services will increase sharply in the next decade (see Is $400 Million The Number?).
There is certainly a lot of merger and acquisition (M&A) activity in the health care field these days. We’ve covered many of the most recent deals, including:
- Advanced Recovery Buys Blue Horizon
- Wellstar To Acquire Five Tenet Hospitals For $661 Million
- Joseph Health, Providence Health & Services To Form New Company In Merger
- Molina Healthcare Creates ‘Pathways’ Subsidiary Following Acquisition Of Providence Human Services
- Molina Healthcare To Acquire Loyola Physician Partners’ Medicaid Program
- Acadia Healthcare Announces Acquisition Of Six Inpatient Behavioral Health Facilities In U.K.
- Walgreens Boots Alliance To Acquire Rite Aid
- Florida Blue & AmeriHealth Caritas Sign Agreement To Acquire Prestige Health Choice
- Team Health Holdings To Acquire IPC Healthcare
- Anthem To Acquire Cigna In Largest Ever Health Insurance Deal
- Capella Healthcare Signs Letter Of Intent To Acquire Lourdes Health Network
- Aetna To Acquire Humana For $35 Billion
- University Of Pittsburgh Medical Center To Acquire Family Hospice & Palliative Care
- KEPRO Completes Acquisition Of APS Healthcare
- Highmark Completes Acquisition Of Blue Cross Of Northeastern Pennsylvania
But if you’re not sure that a merger or acquisition is the right solution for you, what are the alternatives? There are many – organic growth, scaling down with spin-offs, and vertical affiliations strategies with health plans or larger health systems. And if you’re trying to rule in or rule out a potential merger as a strategic initiative, David C. Guth, Jr., Chief Executive Officer of Centerstone, offered some advice in his opening keynote address – The Strategic Advantages & Challenges Of Mergers & Acquisitions at the 2016 OPEN MINDS Performance Management Institute.
His recommendation – your team should be asking five key questions:
Why merger? If you are thinking about growth and scale, you should consider every option – including, but not limited to, mergers. Sit down and list all the ways you can gain scale. Some of your options for growth may be “unpalatable,” but list them anyway. You can’t decide the right choice for your organization without fully considering all options. Think about what your organization can expect to achieve through a merger that it cannot achieve as well, or as quickly, from other means.
Why us? Why would another organization want to merge with you – what are your strengths? Answering these questions is about looking at the market, doing the math, and deciding what makes your organization “attractive.” What assets and liabilities does your organization bring to a potential partner for a merger?
Why them? This question moves the discussion from the theoretical to the specific. Why merger with a specific potential partner. What do they have to offer that addresses the strategic challenges faced by your organization. If they don’t have strengths in those areas, they may not be the right partner. Your goal is to build a better, stronger organization through your partnership – not to merely get bigger.
Why us together? Most mergers fail to achieve their desired objectives. The reality is that even if the strategic alignment is perfect, structural issues can impede the effectiveness of a merger.
How? There are lots and lots of considerations when putting two organizations together. The key is to look at four structural fundamentals: corporate, board, brand, and staff. The right structure for each of these needs to be hammered out early, and needs to be as simple as the external environment will permit. If you don’t work out these essential elements to start with, the details won’t matter in the end.
The discussion of mergers brought out two all-to-frequent questions. The first question was one of the names of organizations. If you merge, should you allow the name of your organization to “disappear”? This brought an animated discussion of brand – which should be viewed as an organizational asset but not its reason for being. Brands are certainly important, but in a more functional way. The advice. First, if you can’t hold a national trademark on your brand, it is likely not as useful in a competitive market – and that’s a piece of due diligence for every organization. The second is to do some market research about the value of your brand. Do the people that matter know your brand – and, if so, is it viewed positively? All too frequently, the brand names of health and human service organizations are less known in their communities than their executive teams might imagine. Finally, if you’re concerned about the reaction of donors to changing a brand, just talk to them. Most donors, when presented with the strategic rationale behind a name change are supportive.
The second big question was about board members and board seats in a merger. Mr. Guth’s advice –”steer clear of arbitrary quotas for board seats on the merged board. Try to retain all of the interested and engaged members. This is often a time when both expectation and engagement of board members is elevated.” And I would add, use the process to raise expectations about the role of the board. This can be in board meeting attendance, mandatory donations, political advocacy and more (for more see One More ‘People Factor’ In Non-Profit Mergers).
For more on making M&A work, check out some of the resources in the OPEN MINDS Industry library:
- M&A ‘Tips, Tricks & Advice’
- Other Weird Arrangements
- Planning To Buy Another Organization?
- In Non-Profit Mergers, People Trump Positioning
- How Do You Pick The Right ‘Partner’?
- Collaboration Model – The LAST Decision You Should Make
We’ll continue to provide more insights from The 2016 OPEN MINDS Performance Management Institute through our Daily Executive Briefings – and elite and premium level OPEN MINDS Circle members will be able to access all the institute presentations online in the coming days. And for more, join us at The 2016 OPEN MINDS Strategy & Innovation Institute session, A Guide To Being Acquired: Why Becoming Part Of A Larger Organization May Be The Right Move, on June 9 in New Orleans.