There is lots of consolidation happening in the health and human service space—mergers, acquisitions, affiliations, partnerships, collaborations, and other arrangements focused on scale. There was a 14.4% growth from 2017 to 2018 in health care mergers and acquisitions (M&A) activity, and in 2018, behavioral care mergers had the most growth among all health care sectors—a 52% volume increase (see Healthcare Merger and Acquisition Activity Up 14.4% in 2018). Just in the past few weeks, the acquisition of DaVita Medical Group by Optum was complete (see FTC Approves UnitedHealth-DaVita Deal With Conditions) and Anthem announced that it has entered into an agreement to acquire Beacon Health Options (see Anthem, Inc. To Acquire Beacon Health Options).
Executive teams are rightly focused on the question “how big is big enough?” So how does your organization decide whether “inorganic growth”—one of this collaboration options—is the right strategy? That was the topic of The 2019 OPEN MINDS Strategy & Innovation Institute session, Finding The Right Partner: A Guide To Starting The Merger, Acquisition & Affiliation Process For Non-Profit Organizations, moderated by OPEN MINDS Senior Associate Joseph P. Naughton-Travers and featuring: Frank Baumann, Chief Operating Officer, BayMark Health Services; Joe Getch, Chief Operating Officer, PRS; Regina Widdows, President and Chief Executive Officer, SERV Behavioral Health Systems; and Wendy Gradison, President and Chief Executive Officer, PRS.
The executive panelists came to this question from different perspectives. PRS is a $7.1 million organization mental health, crisis intervention and suicide prevention services throughout Northern Virginia and Washington, D.C., and most recently merged with CrisisLink in 2014 (see PRS, Inc. and CrisisLink Announce Merger; Expanded Nonprofit Poised to Better Address Mental Health Needs of NoVa and DC Community). SERV Behavioral Health Systems is a $65 million organization delivering a continuum of services for mental health and developmental disabilities in New Jersey, and currently houses 11 different companies. Baymark delivers addiction treatment in 28 states, and last year acquired Canadian Addiction Treatment Centres which included 72 opioid treatment programs, 19 pharmacies, and one residential treatment center located in Ontario (see BayMark Health Services Acquires Canadian Addiction Treatment Centres). But the panelists had some similar advice for the institute attendees—know yourself, get your house in order, know your potential partners, and balance your internal and external strategies.
Know yourself—All attempts to partner with another organization must start with an internal review that leads to an understanding of your service strengths, as well as your operational gaps and weaknesses. A good partnership will lend strength to a partner, as well as offer solutions to those internal problems. Ms. Widdows explained that when she joined SERV Behavioral Health Systems she had the members and executives to do a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis.
I said, you tell us what you think our areas of SWOT are. That gave me a good measure of where our members were. It was important that the board members fully understood all the threats inherent in moving into a fee-for-service funding model. I took that information and broached the subject: this is everyone’s role in preparing for an affiliation. Then we looked at the purpose or intent of any affiliation. It’s really looking at what’s best for keeping the organization sustainable, and for fulfilling mission.
Get your house in order—A SWOT analysis can uncover issues that must be addressed before any chance of a successful partnership can take place. Common issues that will need to be addressed include staffing in current departments, building a strong infrastructure, and board alignment. And board alignment is especially important. Many executives are good at recognizing how to align other executives with the need for M&A, or other kinds of partnerships. However, the board’s involvement is absolutely mandatory, more times than not. Widdows explained:
Boards are looking to affiliate with equals and smaller providers. I discussed the board roles with the board members. I didn’t want them to rubber stamp what we were doing. It was important to discuss the potential issues. I also realized we had to look at the infrastructure. We had to enhance specific departments and develop a strong infrastructure before we could even think of bringing another organization in. For example, we looked at our Human Resources department. We had six staff, and the staff were not able to keep up with the state and federal regulations, and it was clear they couldn’t scale, so we looked to outsource. We looked at our corporate compliance plan, and thought, how can we really make this robust? Before we bring on anyone else, we needed to make sure we were operating in a compliant manner.
Know your potential partners—Identifying possible partners starts as a search, and how you conduct that search will play a huge role in what organizations are identified. If you search too broadly, you spend a lot more time eliminating organizations from the list (which isn’t necessarily bad if you have the time to do this), and if you search too narrowly, you may miss viable partnerships. Mr. Baumann explained that Baymark, which has completed 19 acquisitions since October 2016, looks broadly and focuses on timing.
We are focused on strategic acquisitions with organizations providing treatment for opioid use disorder. We look at geography and demographics primarily. While the opioid epidemic is everywhere, we can’t reach everyone easily. Therefore, we are looking at telemedicine to expand our reach. We often look for a complimentary treatment philosophy. One of the big things is trying to get a feel for the other organization and their readiness to be acquired. Time kills opportunities and the longer a discussion stretches out the less likely it’s going to happen.
Balance internal & external strategies—Nothing happens well without strategic agreement, both on your own team as well as with a partner organization. The question to ask is how well can you rely on your current team, and how well can you rely on the team you are “bringing into the fold.” Everyone needs to agree on the plan, and the drivers of that plan, such as leadership, service lines, service area, operations, and strategic positioning. Ms. Gradison pointed out that PRS is focused on recognizing how unique this process is for every partnership.
There is the saying that if you’ve seen one merger, you’ve seen one merger. You must be purposeful and agree on the process and be prepared for surprises. There might be deal breakers. Who is going to be in the senior leadership positions? It’s the trickiest, but critically important piece because we all have egos. Pay a lot of attention to this, or you can’t move forward. How will the board merge work? Who stays and goes? How many seats? How do you adapt and combine bylaws? What is the reputation and strategy like for each organization?
Mr. Getch also noted that this all comes down to identifying the “blueprint” for the merger and negotiating around that. He explained:
Critical elements are identifying and resolving problems in the contracts, so the funding remains in place. We also wanted to retain the donors and figure out how to resolve debt. Another important thing is, what is the name of the organization? There can be value in the brand, and branding and communication is a key element in the process.
In the coming years, more organizations will seek M&A for either long-term sustainability, or a need to simply survive. For more on guaranteeing survival using a partnership tactic, check out these resources in the OPEN MINDS Circle Library:
- M&A ‘Tips, Tricks & Advice’
- Planning To Buy Another Organization?
- Other Weird Arrangements
- Collaborations Demand ‘Proving Your Business Case’
- In Mergers & Collaborations, Don’t Forget The Tech Plan
- How Do Meta-Leaders Create The Collaborations That Matter?
- The Challenge of Collaboration is to Do What We Do Not Want to Do
- Viewing Collaboration as a Strategic Art as Opposed to the Option of Last Resort
- 10 Keys To Successful Collaboration
- How Do You Pick The Right ‘Partner’?
And join me on August 15 in Long Beach, California at The OPEN MINDS Mergers, Acquisitions, & Affiliations Summit: Best Practices For Non-Profit Health & Human Service Organizations – A Centerstone & OPEN MINDS Collaboration. The event will feature John F. Talbot, Ph.D., Vice President, Corporate Strategy, Jefferson Center for Mental Health, & Senior Associate, OPEN MINDS; Scott Hoffman, Chief Financial Officer, Mosaic; David C. Guth, Jr., Chief Executive Officer, Centerstone; Roy Leitstein, MS, Chief Executive Officer, Legacy Treatment Services; Mike Lyons, Strategy & General Counsel, Mosaic; Patrick Maynard, Ph.D., Chief Executive Officer, I Am Boundless, Inc.; and Donald Parker, LCSW, President, Hackensack Meridian Health Carrier Clinic.