From the August 2018 issue of HealthCare Business News magazine


The hallmarks of a badly executed merger
The influence of M&A activity on service pricing and, subsequently, healthcare costs, falls on the success of their execution.

These deals don’t just happen because of a desire to combine specialties or expand one’s presence, there are complex factors involved that can sometimes lead to poorly designed agreements between parties that lack an understanding of how one another’s market or business model works. These deals can even occur among large healthcare companies trying to acquire smaller ones.
“They buy them in, they try to integrate their products, but really they haven’t understood the business model or segments very well,” said Holloway. “They haven’t really thought about how it integrates with the certain market perspective of their core base. Generally, they have pretty high demands in terms of the performances of that unit before and after the acquisition. Too often, we see them spot off.”

Pricing is another factor to consider, with relatively cheap acquisitions through the use of private equity often signaling difficulties in the business that can lead to cut-downs in operational costs and an overall slimming-down of the company.

For many service providers, particularly smaller ones, the risk of incurring poor quality in their services can rise with the exit of a leader or founder following the completion of M&A activity, which can create shifts away from R&D and innovation and make it more challenging to fight for a unit in big corporate environments, depending on the direction the new leaders want to pursue.

Walker says that such events can be avoided by making sure that company cultures align prior to any activity, which subsequently impacts the satisfaction of customers.

“If you have a culture from one company that’s hyper-responsive and customer-first as a value, going into conversations [about] being acquired by a company that values cost savings or low-cost alternatives – that doesn’t necessarily work well together,” he said.

What will tomorrow’s big deals look like?
Overall digitalization of the marketplace has spurred greater attention in the field of health IT, especially around EHRs. Such interest is expected to influence the basis of specialties that future consolidation activity is geared toward. These include population health management, cloud technology and telemedicine, among others.

Along with these growing areas of interest are shifts in decision-making from capital spending to per-month perspectives, according to Philip, who says retrieving desired outcomes from M&A for service organizations and even OEMs depends on their focus.

August 2018 Magazine

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