The Executive’s Guide to Healthcare M&A: Part IV
Most mergers fail to achieve their objectives. In our experience, this is due to misalignment of M&A objectives with acquisition target partners, unsuccessful post transaction operational integration, or both. Previous articles in this series share best practices on defining merger objectives and finding the right partners to acquire. In this article, you’ll discover key strategies to ensure you have a clear path to a successful partnership once the deal is done.
The acquisition deal is done. All of the resources invested in planning, identifying and selecting targets, bidding and negotiating, and finally acquiring another organization ARE NOW AT RISK. If you cannot operationally merge the original and acquired enterprises to achieve your acquisition objectives, the whole initiative is a total failure.
To state the obvious, the key to a successful healthcare M&A is the development and execution of the Consolidation & Integration Plan.
The consolidation and integration plan should evolve with your partner selection process. Once the deal is done, you’ll have a clear picture of the next steps.
Here are 4 integration planning steps to consider as you go through the acquisition process:
1. Outline the integration plan when first planning your partner search
It starts back when you are first creating the acquisition scenarios that give structure to your search for a suitable partner. In 5 Steps to Finding the Right Healthcare M&A Partners, I suggested that for each scenario you should define – at some level of specificity – those steps and related costs necessary to realize your objectives post transaction through appropriate consolidation and integration planning.
At this stage your plan will be little more than an outline. You should be starting to consider the major integration tasks in the following areas relevant to each scenario:
- Organization – Structure, Leadership, Staffing, and Culture
- Business Functions and Processes
- Supporting Tools and Systems
- Facilities and Locations
- Governance and Management
2. Build on and refine your integration plan outline as you narrow your partner search
Once you have identified a short list of targets you should start to fill in the outline according to the specifics of each potential partner. This means you will have several somewhat different versions of the plan. Think in terms of any applicable financial, quality, service level/throughput, and compliance performance objectives in each category above. What integration activities are required to achieve those objectives and what kind of resources would be required?
3. Leverage confidential finalist data to add plan detail
When you have identified the one or two finalists for which you intend to make acquisition offers you will want to continue to refine and provide more detail to the plan. Your efforts will be enhanced by the availability of more information than was previously available. At this point in the process, more data is typically required and shared under non-disclosure.
Yes, you may now be creating multiple fairly comprehensive plans. But now is when it is most critical to understand exactly what you are getting into to properly inform your deal valuation (offered purchase price) as well as other key negotiation points. The extra investment is well worth it in the end.
Consider addressing ancillary operational challenges. Sometimes acquisition partner integration is a good time to fix other problems in both organizations as you are reengineering anyway. This is an often under appreciated benefit of large scale reengineering. Look for such opportunities in both organizations and build the work into the plan(s).
4. Work with your new partner to finalize the integration plan
Finally the deal (or deals – no one said you can only do one acquisition at a time) is reached. Typically, there’s a period of time after the deal is reached and announced before it’s actually finalized. It can be months or even years before consolidation and integration execution can begin.
This is the golden time to make final adjustments. As the acquiring party, you will have virtually unrestricted access to detailed information. As important, you will also have colleagues on the other side of the transaction who are hopefully highly incentivized to make the transaction and consolidation a success. Their future job security and/or perhaps financial incentives are on the line.
Now is the crucial time to refine your plan to ensure you can keep two or more businesses operating at peak effectiveness even while undergoing consolidation. You typically can’t just stop operations while you take weeks or months to integrate partner organizations.
If done properly, a majority of the integration plan should be completed by the time the deal is reached. Integration activities will align directly with performance objectives, and you’ll have plans in place to deal with all of the complexities of combining two organizations.
The best the Consolidation and Integration Plan is useless without excellent execution. Executing the plan is a perfect example of the cliché of changing the tires on a moving bus. But in this case there are multiple moving buses. This creates obvious complexity, but here are 5 best practices that will increase your odds of success.
1. Use formal program management
The management focus and discipline of formal program and project management is key. They’re typically coordinated through a separate Program Management Office (PMO) and align tasks, resources, scheduling, and communication to best assure that both integration process and business objectives are met.
If there was ever a poster child for formally managing multiple related projects under a program management umbrella, merger partner consolidation and integration is it.
2. Use resources from both parties to manage the integration
Joint governance and management of the integration process is also important. Arguably the trickiest part of post transaction consolidation and integration is dealing with the inevitable people issues.
Everyone understands that there will often be staffing cuts. Everyone wants to know their own future. Will they keep, change, or lose their roles? We always recommend that clients plan for and communicate every individual’s future ahead of time. Take any negative personnel actions quickly and then lean on survivors to lead the consolidation efforts.
3. Remain flexible during plan execution
Consolidation and operational integration of multiple enterprises is complex and can take many months. A lot can happen in the healthcare industry in that amount of time. And you are presumably still operating so as to generate revenue, satisfy customers, serve members or patients, etc.
New opportunities and challenges will almost certainly arise even as you are executing your integration plan. You will need to remain flexible as available resources may suddenly be better deployed on tasks other than what is in the original plan. In extreme cases, whole sets of planned integration activities may need to change. Leverage your formal program management process to assure that resources remain most effectively utilized throughout the transition period.
4. Plan to manage consolidated operating performance
Be sure you end up with a single consolidated Performance Management System that formalizes setting financial, quality, service level, and compliance performance objectives across all critical functional domains. Once objectives are set, this system measures, tracks and reports ongoing performance against objectives. Management can use this data to make informed business decisions.
Of all the functions you will be integrating, this is the system you will use to drive the combined organization. Without integrated performance management you will never know if the whole initiative is a success or failure.
5. Measure M&A and operational success
Assess both process and outcome aspects of post consolidation and integration performance. Most mergers are not immediately clear as to success or failure. Utilize the integrated performance management process to assess both the consolidation process itself as well as the business outcomes of the combined organization to inform any corrective and future improvement initiatives or future acquisitions.
Consolidating operations of two or more organizations is one of the more challenging tasks in business. Healthcare industry enterprises are often particularly complex in structure and function due to the often distributed nature of care settings, providers, and supporting technology. Utilizing third party advisors with expertise and experience in combining organizations at both a strategic and operational level can greatly increase your probability of success.