When M&As Go Wrong

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Considering a merger? Make sure the prospective partner’s financial liabilities and operational challenges are apparent by the time the due diligence phase is completed.

When providers identify a potential M&A candidate and perform due diligence, there are no guarantees that a formal agreement will be concluded. In fact, there are a number of financial and operational ways that a potential deal can be derailed.

According to the 2018 HealthLeaders Media Mergers, Acquisitions, and Partnerships Survey, respondents report that the top three financial reasons an M&A involving their organization was abandoned before or during the due diligence phase are concerns about assumption of liabilities (21%), costs to support the transaction were too high (19%), and concerns about price (19%).

Note that the full extent of a prospective organization’s financial liabilities may not be apparent until the due diligence phase is completed, which may explain why this aspect plays a major role as a deal breaker.

Operational challenges

Respondents say that the top three operational reasons that an M&A involving their organization was abandoned before or during the due diligence phase are incompatible cultures (30%), concerns about governance (24%), and concerns about the operational transition plan (21%).

Interestingly, based on net patient revenue, a greater share of large organizations (47%) than small (25%) and medium (17%) organizations mention incompatible cultures, an indication of some of the challenges providers face when integrating large organizations with disparate cultures.

Pamela Stoyanoff, MBA, CPA, FACHE, executive vice president, chief operating officer at Methodist Health System, a Dallas-based nonprofit integrated healthcare network with 10 hospitals and 28 family health centers, says that organizational culture exists both at the senior leadership level as well as throughout an organization, and problems can arise because sometimes they can be different.

“You have two senior leadership teams sitting in a room trying to agree on deal points and reach a philosophical agreement. Oftentimes, you have cultural compatibility at the senior level (those who are consummating the deal) but find that culture throughout the remaining levels of the organization is not as conducive to a merger. That is something you don’t necessarily see until later, after the deal is done,” she says.

 

Jefferson, Einstein Healthcare Network to explore merger

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/jefferson-einstein-healthcare-network-to-explore-merger.html

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Jefferson Health and Einstein Healthcare Network, both in Philadelphia, signed a nonbinding letter of intent to merge, Jefferson Health confirmed to Becker’s Hospital Review March 27.

Jefferson Health comprises 14 hospitals and 50-plus outpatient and urgent care locations, while Einstein Healthcare Network maintains three hospitals, approximately 1,000 licensed beds and 8,800-plus employees across its facilities.

With the move, Jefferson and Einstein Healthcare Network will set the stage for the creation of one of the region’s largest residency programs, officials said.

The organizations will enter a period of due diligence, and will sign a definitive agreement should they choose to move forward.

“Einstein Health Network is the perfect match for our vision of an academic and health system ‘with no address’ where the patients and students are the boss. Einstein has a history of caring for the underserved, training health professionals of the future and embracing change and innovation which makes them the perfect partner for our trustees’ goal of helping to create a healthcare innovation revolution in Philadelphia,” Jefferson Health President and CEO Stephen K. Klasko, MD, said in a statement to Becker’s Hospital ReviewMarch 27.

“Einstein represents an academic medical center with a 150-year history of caring for the underserved despite challenges in healthcare. [Einstein Healthcare Network President and CEO] Barry Freedman knows that urban hospitals still fill a unique role in their communities, despite many other hospitals packing up and heading for the suburbs. Einstein had many options for future partners and I’m glad they went with us,” he continued.

 

Trinity Health in talks to sell New Jersey assets to Virtua Health 3 months after failed merger

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/trinity-health-in-talks-to-sell-nj-assets-to-virtua-health-3-months-after-failed-merger.html

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Carbondale, Pa.-based Maxis Health reportedly entered into a nonbinding agreement March 8 to sell Lourdes Health System, a two-hospital system in Camden, N.J., to Virtua Health.

Under the letter of intent agreement, Marlton, N.J.-based Virtua Health will purchase Lourdes Health System’s two hospitals from Maxis Health, an entity of Livonia, Mich.-based Trinity Health.

“The parties hope that they will be able to complete this transaction, which has the potential to achieve great benefits for healthcare in South Jersey. Further review is underway; there is no final agreement,” Lourdes Health System officials said in a news release. “Because we are very early in the due diligence process, the parties have no other information to provide at this time.”

The decision comes roughly three months after Camden-based Cooper University Health Care axed its plans to acquire Lourdes Health System and Trenton, N.J.-based St. Francis Medical Center.