By Monica Oss, Chief Executive Officer, OPEN MINDS

 

Despite (or maybe because of) all the changes occurring across the health and human service landscape, mergers and acquisitions are proceeding at a rapid pace. This is true for both for-profit and non-profit organizations.

Just in the past few months we’ve seen headlines like Northern Wyoming Mental Health Center Merges With Volunteers Of America Northern Rockies, Cayuga Centers Merges With Institute For Child & Family Health In Miami-Dade County, Trinity Health Completes Acquisition Of MercyOne Health, and Alliance Of Arizona Nonprofits Merges With Arizona Grantmakers Forum.

On the for-profit side, Village MD and Summit are looking at merging (see VillageMD Reportedly In Talks To Merge With Primary Care Provider Summit Health). There is LCMC Health’s planned acquisition of three Tulane University hospitals from HCA (see LCMC Health To Acquire 3 HCA hospitals In Partnership With Tulane University ). These are just a few of the many recent transactions.

But mergers don’t have a successful track record—over half of them fail (see Most Mergers Fail Because People Aren’t Boxes  and The Big Idea: The New M&A Playbook . So how do you increase the odds for a winning merger or acquisition? We heard from three organizations that have a “higher than average” success rate in making mergers work—Mosaic, Community Based Care, and Trivium—in the session, We’re Merged, Now Change: Best Practices In Making Newly-Merged Organizations Work, which was part of The 2022 OPEN MINDS Management Best Practices Institute. The session featured Angela Weis, Senior Vice President of Mission Support for Mosaic; Gene Rodgers, MSW, Executive Vice President of Strategy and Corporate Development for Community Based Care (CBC); and Brad Schroeder, Vice President of Human Resources for Trivium Life Services.

Mosaic serves nearly 4,900 people in more than 700 communities. Services are tailored to meet individual needs and goals, allowing people to be as independent as possible. Services are designed for people with intellectual and developmental disabilities, mental and behavioral health needs and autism, as well as aging adults. Since 2017 Mosaic has been involved in six acquisitions, which added 2,100 people to their workforce and 2,400 more consumers to support.

The Community Based Care (CBC) family of providers supports people with intellectual and/or developmental disabilities (I/DD) and their families throughout North Carolina, Florida, Virginia, and Rhode Island. CBC has been involved in 32 acquisitions over the past six years.

Trivium Life Services is a non-profit organization committed to behavioral health and long-term support services. With a presence in five states, Trivium serves those who are seeking help but haven’t had their needs met.
 

These executives discussed the key factors for success, both during and after an acquisition—communicate transparently, align values with one another, and learn from previous acquisitions.

Communicate transparently: An acquisition can leave people in the dark, unsure of their roles and the potential new direction of the organization based on the merger. As such, they may not literally know what to expect the next day after hearing the news. “It’s important for everyone to continue to do what they’re doing every day and not get consumed in the details of an acquisition,” said Ms. Weis. “We want to remain aligned to our mission, vision and values from the beginning and that’s why we focus on collaborative communication. We focus on clear, consistent positive messaging for all stakeholders, which can be parents, guardians, vendors, a board of directors, partners, and payers, and thinking through what is the communication plan for each one of those audiences. We try to do that communication jointly, so you’ll see a lot of videos that we do with the CEO of our organization and the CEO, or Executive Director, of another organization, jointly saying that message together. We also recommend communicating in ways that are familiar to the incoming organization, not just with what’s typical for your organization.”

“People fear mergers and acquisitions, they think their future will go away, but none of us in this field have enough employees,” said Mr. Rodgers. “There are certainly not enough professionals, direct care workers and clinicians to go around. So we take an honest, transparent and direct approach with all interactions with new staff, family, clients, and payers. You have to admit there will be changes, there’s going to be obstacles, there’s going to be new systems, it’s not going to be all the same. You really have to prepare people because there is a lot going on and it gets very stressful. That’s why we focus on communication to maximize success for this transition for staff, employees, clients and families.”
 

Align values with one another: In some cases, a newly acquired company looks entirely different the day after it has been bought. And that often includes elimination of qualities that made the organization appealing in the first place. For Mr. Schroeder that’s a bad idea. “We want to combine organizations in a way that builds on efficiencies while also still retaining some best practices,” he said. “But we try to make sure that everybody knows we’re coming at this from what we’ve called the spirit of partnership—we’re acquiring organizations for financial reasons but we want to make sure that it is a genuine partnership. We try to learn from each other, to not go in and change things right off the bat just for the sake of changing them. These organizations are well run, they’ve served their customers, their clients, and their communities for a long time and have been financially stable. We want to make sure that their best practices are things that not only we can keep, but also try to integrate within the organization.”

Learn from previous acquisitions: While acquisitions provide many financial and strategic benefits, hard lessons come with the territory. And that’s a source to make the next acquisition that much better. “We focus on learning even when it’s painful for us to hear certain things that require improvement,” said Ms. Weis. “For example, we learned that the integration process has got to be prioritized by both organizations, utilizing talent in the best way possible. We ask how we could better retain the workforce. Are we hitting the budget numbers that we anticipated? And we do that throughout the whole process, all the way from the due diligence phase to our integration phase. It’s about constantly asking for feedback and learning from our own teams as well as the incoming organization and taking that feedback, learning from it, and putting a plan into place for what we’re going to do for the next merger.”

“With any merger or acquisition, you have to be able to document and have a systemic plan for how you’re going to communicate whatever’s happening between your organizations as they merge authority”, said Paul Duck, Senior Associate at OPEN MINDS. “Things won’t be the same anymore, you have got to remove that kind of mentality from the very beginning, realizing that it’s going to be different. Instead, you should celebrate the two organizations coming together, you should celebrate it with your community.”

For more on mergers and acquisitions, check out these resources in The OPEN MINDS Industry Library:

• Competition & Viability – Mergers & Acquisitions: One Organizations Journey
• How Do You Know When It’s Time To Merge? Using MA&A Strategy To Improve Your Financial Strength
• Financial Success = Culture Change
• Navigating The Future In Three Steps
• Is ‘Non-Traditional” A New Definition?
• The Many Flavors Of Private Equity
• Hospital & Health System Mergers & Acquisitions Total $19 Billion In Second Quarter Of 2022
• Physician Medical Group Acquisitions Up 5% In Second Quarter 2022, But Total Health Care Deals Dropped 9%
• Four Things I Learned About Private Equity

For even more, join us February 16 in Clearwater, Florida for “Planning For Financial Sustainability”, which is part of The 2023 OPEN MINDS Performance Management Institute. The session features Ken Carr, Senior Associate for OPEN MINDS.

By Monica Oss, Chief Executive Officer, OPEN MINDS

 

We’ve reached a time when the investor-owned health and human service market will likely see a correction of market value. It’s been a decade of big investment. The investment in health care in general—and in digital and in behavioral health companies in particular— culminated in $57.2 billion being pumped into the global digital health segment last year. That was a record year, though the 2022 investments are returning to the 2020 levels (see Digital Health Startups Received $57 Billion In 2021). The result of—or maybe the driver of—these investments is the creation of dozens of health care “unicorn” companies valued at over $1 billion including Cerebral ($4.8 billion), BetterUp ($4.7 billion), Lyra Health ($4.6 billion), and Calm ($2 billion).

There has also been major consolidation in the health insurance/health plan market. The five largest health insurance companies, UnitedHealth Group, Anthem, Centene, Humana, and Health Care Service Corporation, now control almost half of the market (see Largest Health Insurance Companies Of 2022). This health plan consolidation will limit the market opportunities for these start-ups, both for contracts and for an exit strategy; there just isn’t enough health plan real estate to go around.

Another challenge to the many new companies in the field is rising interest rates. Many of the start-ups are not yet profitable—and rising rates are increasing the cost of money for additional financing and dampening investor enthusiasm in companies with a high burn rate. As a result, we’re seeing layoffs at many of these companies. Truepill’s layoff affected approximately 65% of their staff (see Truepill, A Digital Health Unicorn, Conducts Fourth Round Of Layoffs In 2022 ). Carbon Health, one of the most prominent unicorns, cut 250 employees (see Layoffs Hit Cerebral, Carbon Health And Other Digital Health Companies). Wheel reduced its staff by 17% (see Exclusive: Digital-Health Startup Wheel Laid Off 17% Of Its Staff).

And we’re seeing consolidation as well, both with the acquisition of these start-up companies by health plans and the merger of start-up companies. Cigna acquired MDLive to expand their telehealth capabilities (see Cigna Agrees To Buy MDLive In Expansion Of Telehealth Offering ). Among its many acquisitions, Optum has acquired Refresh Mental Health and AbleTo (see Optum Acquires Refresh Mental Health and Optum’s Multibillion-Dollar Acquisition Spree: 3 Deals To Know). In addition, the start-ups are merging (see Headspace Health Acquires The Shine App, An Inclusive Mental Health & Well-Being Platform, and Little Otter Health Acquires ‘Little Renegades’ Wellness Products Brand, and Digital Health Care Platform MediBuddy Acquires Rural Health-Tech Startup Clinix).

Yet despite the softness in the current market, there’s still a strong level of investment.  While a recent investor analyst report found that 2022 investments in the digital mental health space had dropped from 2021, it is important to keep in mind that 2021 was a record year. We’re still seeing over $2 billion per quarter in investments (see Digital Mental Health Investment Down 82% In 2022). And my inbox has daily reports of new investments. In the past month, Brave Health, a virtual-first behavioral health provider focused on serving Medicaid populations, landed $40 million in funding (see Brave Health Secures $40M To Close Medicaid Mental Health Gap). NeuroFlow, a behavioral health startup, has received $25 million (see NeuroFlow Scores $25M Funding, New Air Force Partnership). And Rippl, a mental health startup focused on seniors, launched with a $32 million investment (see New Mental Health Startup Rippl Launches With $32M Funding).

It’s too early to tell what organizations will survive the cruel test of the free market. Paul Duck, Senior Associate here at OPEN MINDS says, “While we have seen large investments in digital health, the timing for some will be too early, and for others, too late. The rate at which these digital health startups reach profitability will ultimately determine whether they will enjoy great success, be combined with other technologies, or simply go away from a changing market and market focus.”

Whatever happens, we’ve seen this type of flux in the health care field before among managed behavioral health companies. You may recall, at one point there were 3,000 of them, but today there are a mere handful. And you may remember names like American Biodyne, Merit Behavioral, U.S. Behavioral Health, TAO, and Value Behavioral Health. Digital health will also have names that collect dust. So be patient, it will be few more years until the market crowns a winner in the segment.

For more on mergers and acquisitions, check out these resources in The OPEN MINDS Industry Library:

• Hospital & Health System Mergers & Acquisitions Total $19 Billion In Second Quarter Of 2022
• Making Mergers Work: A Best Practice Model For Merger Preparation
• Keeping Consumers In Mind As Mergers Happen
• Making Mergers & Acquisitions Work — Perspectives From Executives Post-Mergers
• We’re Merged, Now Change: Best Practices In Making Newly-Merged Organizations Work
• The Many Flavors Of Private Equity
• Four Things I Learned About Private Equity
• Seven Lessons For M&A
• Getting To Scale Without A Merger
• Ten Keys To A Successful Merger & Acquisition

And for more, join us for the session, “How To Develop a Strategic Plan: An OPEN MINDS Executive Seminar On Best Practices in Strategy, Portfolio Management & Scenario-Based Planning”. This executive summit, which is part of The OPEN MINDS Technology & Analytics Institute, takes place in Las Vegas, Nevada on November 8 from 1:00 pm – 4:30 pm.

By Monica Oss, Chief Executive Officer, OPEN MINDS

 

How big is big enough for a sustainable specialty provider organization? The answer, which is a moving target, is ‘it depends”. The news of Amazon’s acquisition of One Medical has dominated the market news the past couple weeks (see Amazon To Acquire Primary Care Provider One Medical For Almost $4 Billion). But there is a constant stream of announcements of mergers and acquisitions in the field like Molina Healthcare To Acquire Medicaid Plan MyChoice Wisconsin For $150 Million, Mindpath Health Acquires Acacia Counseling & Wellness, and Rush Health Systems In Mississippi Merges With Ochsner Health.

For executive teams, once they have a strategic blueprint, the question is what resources are required for success—and does that involve ‘getting bigger’. Some executive teams will opt to ‘go boutique’ and be smaller—specializing in a defined niche in the service delivery system. But those market opportunities are rare. Most executive teams find themselves in the position of needing more—more talent, more market reach, more capital. And that typically involves either mergers and acquisitions—or some type of affiliation.

In my experience, making an affiliation work is tricky. And we’ve covered many affiliations that are thriving. In June, Canopy Health added four Providence hospitals in Sonoma and Napa counties to its network alliance, adding nearly five hundred clinical professionals in the Providence Medical Network, offering a wide spectrum of primary and specialty care services. Canopy Health was incorporated in March 2015 as an affiliation between UCSF Health and John Muir Health, including ownership and leadership by Hill Physicians Medical Group and John Muir Medical Group (see Canopy Health Partnership With Providence Adds Four Hospitals In Sonoma & Napa Counties To Network Alliance). King’s Daughters’ Health (KDH) in Madison, Indiana and Norton Healthcare in Louisville, Kentucky signed a Letter of Intent enabling both health care systems an opportunity to explore the possibility of a partnership based on the success of their affiliation agreement for oncology services with Norton Cancer Institute at KDH’s Cancer Treatment Center in Madison (see King’s Daughters’ Health & Norton Healthcare Sign Letter Of Intent To Explore Partnership). New York state non-profit behavioral health provider organizations Evergreen Health and Spectrum Health and Human Services began exploring a strategic affiliated partnership in which Spectrum Health would become an affiliated partner of Evergreen Health to create a regionally unique continuum and scope of services integrated care, each retaining their 5013(c) status and day-to-day operations. In February 2022, the partners were awarded a $2.65 million contract from Substance Abuse and mental Health Services Administration to expand medication assisted treatment in their rural communities (see New York’s Evergreen Health & Spectrum Health Evaluating Affiliation and Spectrum Health and Evergreen Health Awarded $2.65M To Expand Medication Assisted Treatment In WNY’s Rural Communities). And Clinical Services, a division of the health care services company Altais, and Brown & Toland Physicians, completed their affiliation in 2020, in which Brown & Toland Physicians became a subsidiary of Atlais while still retaining their chief executive officer, brand and contracts but gained access to the resources of Altais (see Altais Clinical Services & Brown & Toland Physicians Complete Their Affiliation). (For more on affiliations and partnerships, see Getting To Scale Without A Merger, How To Gain Scale – Without A Merger, and Getting To Scale Without Mergers).

If an affiliation won’t do the trick, that leaves a merger or acquisition of some type. Over the years at OPEN MINDS, our team has learned that there really are two main reasons that provider organization mergers don’t work—having the wrong strategy or the wrong process. In the first case, organizations planned a merger when it should not have happened at all or with the wrong partner. In the second, they had the right strategy but not a good process for making it happen.

In last month’s newsletter, my colleague Joe Naughton-Travers, OPEN MINDS Senior Associate, covered how to ensure the right strategy in When Thinking Merger & Acquisition, First Think Strategy: A Best Practice Approach. This month his focus is on the process—what steps you need to take before the actual merger and how to build an effective post-merger integration plan. He outlines a “how to” approach for developing a detailed project plan for both the pre-merger tasks and post-merger integration processes in Making Mergers Work: A Best Practice Model For Merger Preparation and Making Mergers Work: Key Components Of An Effective Post-Merger Integration Plan.

As you read through these detailed planning lists, keep these four points in mind:

• In a merger, you will terminate some staff because your integration plan should include eliminating any duplicate positions.
• You need to move to a single electronic health record, human resource information system, and general ledger system.
• Don’t simply combine clinical operations—build your clinical operations organizational chart based on a service portfolio for the future.
• Move fast—complete the merger integration in a year or less.

For added perspectives on making mergers work, check out Keeping Consumers In Mind As Mergers Happen—with some perspectives on the impact of mergers on consumers. And, for a snapshot of the rules of the road, look at Seven Lessons For M&A. The goal of this issue is to provide executive teams with a structured approach to the ‘process component’ of making mergers work.

By Monica Oss, Chief Executive Officer, OPEN MINDS

 

I walked away from our 2022 OPEN MINDS Mergers, Acquisitions & Affiliations Summit with new insights on the role of private equity (PE) in the field. And for that, I’m grateful to our three keynote panelists—Eric Keen, General Partner for Council Capital, Matthew Pettit, Founding Partner of Seven Hills Capital, and C.J. Burnes, Partner at WindRose Health Investors—and the insights they shared in their session The Investor Perspective—The Trends & Future Of Investment In The Complex Consumer Market Space at the summit. So what are these insights?

The horizon for private equity investments is three to seven years. This may seem short but is part of a four-stage capital cycle in the for-profit health and human service sector. The discussion at the session was that start-ups are for funding by friends and family, while venture capital funding is for organizations with the potential to scale. By the time private equity is appropriate, organizations have scaled and have the potential for profitable market leverage with increased access to capital. Finally there is the buy-out stage, with the goal of return of three to five times the investment.

PE is focused on for profit organizations. Managers of private equity portfolio companies do not have an appetite for working with non-profit organizations. Their perspective is that it takes too long to try to align financial incentives—though the comment was made that working an operational and successful for-profit subsidiary of a non-profit organization was not out of the question. And joint ventures (JVs) don’t appear to be high on their investment list. The comment was that joint ventures are ‘difficult’ and have not done well financially. Though they are looking for JV models that work.

Joe Naughton-Travers, OPEN MINDS Senior Associate and summit co-chair, commented, “If non-profits are holding on to the hope that private equity is an option for saving them from their financial woes, they are mistaken. Private equity is looking for an investment they can flip in the five to seven year range.”

Profitability is an expectation. The profitability expectations of PE investors for health and human service organizations is in the 5% to 12% range. This discussion at the summit got some collective groans from many of the executives in the audience. But the speakers discussed their strategies to address margin compression. Their approach has three elements. First, building organizational scale to reduce the impact of overhead costs. Second, investing in technology to reduce costs of both administration and service delivery. And, lastly, developing value-based relationships with payers, gaining financial reward from better performance. Their comment that stuck with me, “Fee-for-service is hard in the long run.”

“Organization size can create competitive advantage—lower unit costs, increased ability to contract with payers for more clients over a larger geography, and investment in technologies to provide better services more efficiently,” noted Ken Carr, OPEN MINDS Senior Associate and summit co-chair.

PE investment in health care will not decrease anytime soon. Don’t expect to see a decrease in private equity investment in the health and human service field for the rest of 2022 and 2023. There are over $12 billion in funds that have been raised for investment in the health and human service field—”the dry powder of private equity”. From an investor perspective, health care “is considered recession proof” and “growth will likely outpace inflation.”

Mr. Carr concluded, “It appears that for-profit and not-for-profit human services organizations are on parallel paths in implementing strategic mergers and acquisitions. The three big industry disruptions of talent for competition, integrated services to treat the whole person, and business model changes required for successful implementation of value-based contracting impact all organizations—irrespective of the tax status. Merger or acquisition should be a strategy objective for every leader. But the successful implementation of this strategy will be very organization specific.” Mr. Carr commented. “What potential merger partner or acquisition will be a strategic fit? How will due diligence be completed to identify potential risks, and potential synergies be identified? And what is the plan for integration, and what experience talent will be used to ensure success. The drivers and strategy for merger and acquisition are clear, however the risk assessment and potential are based on knowledge, a plan, and the right talent.”

For more on private equity in health care, check out these resources in the OPEN MINDS Industry Resource Library:

• Health Care Sector Private Equity Deals In First Quarter 2022 Down About 40% From First Quarter 2021
• Private Equity Firms Invest Record $151 Billion In Health Care Sector
• $51 Billion Invested In Health Care In The Fourth Quarter Of 2021 By Private Equity
• Behavioral Health, Private Equity & Competition
• The Future Of Private Equity Investments In The Health & Human Service Space
• The Private Equity View Of Behavioral Health & I/DD
• Private Equity For Expansion Capital: The Pros & Cons
• For Better Or For Worse? Three Ways Private Equity Can Change Your Life
• Investment Bankers, Private Equity & Venture Capitalists, Oh My
• Keeping An Eye On Private Equity In Your M&A Strategy

For more on mergers, acquisitions, and affiliations, plan to attend How Do You Know When It’s Time To Merge? Using MA&A Strategy To Improve Your Financial Strength, featuring Mike Lyons, Senior Vice President and General Counsel for Mosaic and Jeff Holsinger, Chief Executive Officer for Volunteers of America Northern Rockies (VOANR) on October 6 at The 2022 OPEN MINDS Executive Leadership Retreat in Gettysburg, Pennsylvania.

By Monica Oss, Chief Executive Officer, OPEN MINDS

 

The wave of large mergers and acquisitions (M&A) among hospitals and health systems shows no sign of abating. The 13 transactions (in three, the acquirer was a for-profit) reached a historic high of $19.2 billion in total transacted revenue, according to ‘Kaufman Hall’s Quarterly Mergers and Acquisitions Report.’ This more than doubles the total transacted revenue for hospitals and health systems of $8.5 billion in Q2 2021 (with the same number of transactions). This sustained pace of M&A and of private equity investment continues across the health and human service field.

When you talk to executive teams about the increase in M&A in the field, there are usually one of two strategic drivers. The first, M&A as a strategy for driving growth. M&A can be a less expensive (and certainly faster) way of increasing revenue and of diversifying service lines and funding streams. The second is to build scale—for reducing overhead costs, for increasing market clout, for increasing financial strength, and more.

The question of scale is on the mind of every executive team, couched in the question ‘how big is big enough?”. Executive teams that were talking about a $25 million minimum threshold are now talking about $75 to $100 million. Executive teams of larger organizations that had set their sights on $200 million in revenue are now talking about $500 million to have ‘clout’.

This perspective is driven by the increasing size of organizations in the field over the past decade, HCA Healthcare is now at $44 billion in revenue. The CommonSpirit and Ascension health systems are at $30 billion and $22 billion, respectively (see Top 10 Largest Health Systems In The U.S.). On the payer side, United Heatlhcare tops the list at $257 billion, with Anthem and Centene next in line at $122 billion and $111 billion, respectively (see 8 Largest Health Insurers By Revenue — UnitedHealthcare No. 1 At $257B). The Kaufman Hall data underscores the change in scale. Of the 13 transactions last quarter, the smallest organization being acquired was $600 million—and the average size of the acquisition targets doubled over the past year.

For executive teams, developing strategies for sustainability, growth (for revenue replacement and margin optimization) is certainly high on the list. And M&A needs to be a strategic consideration in those growth strategies. But there is no one-size-fits-all plan. How to sync sustainability strategy with M&A planning is the focus of this month’s OPEN MINDS Management Newsletter. My colleague, OPEN MINDS Senior Associate, Joe Naughton-Travers outlines a “how to” approach for considering mergers and acquisitions—whether you are looking to acquire another organization or be acquired—or not. In the article, When Thinking Merger & Acquisition, First Think Strategy: A Best Practice Approach,  he describes the three categories of strategic collaborations and the possible benefits they can bring. This includes a seven step best-practice process for acquiring another organization. The article, Is Your Best Strategy to Be Acquired? If So, Use These Six Steps, reviews the process for being acquired. And finally, there are some key considerations in making any collaboration work in Ten Keys to a Successful Merger & Acquisition. The goal of this issue is to provide executive teams with a structured approach to thinking about strategy, growth, scale, and collaborations.

By Monica Oss, Chief Executive Officer, OPEN MINDS

 

How often are mergers and acquisitions (M&A) successful? While the numbers say not often—studies show the failure rate is between 70% and 90% of the time (see The Big Idea: The New M&A Playbook)—that hasn’t stopped the rapid pace of industry consolidation. In recent months, we have some big industry changes that call into question the ability for small, specialty organizations to survive without taking a serious look at either M&A or other forms of provider organization collaboration.

To do that successfully, service provider organization executives need to know how to navigate the collaboration process—from building the right strategy, to finding the right partner, to executing the implementation. After working with countless executives to navigate this process, OPEN MINDS has developed ten guiding principles to a successful M&A process:

#1 – Planning Always Comes First

Collaborations of any type come with a big price tag—both financial and executive time. The first step is always strategic planning and being certain that collaboration—and M&A in particular—is essential to future organizational success.

#2 – Be Systematic & Have A Process

Whenever two (or more) organizations come together for any purpose, there are many elements in play. The politics (read small ‘p’) can be blinding, so the process and decision criteria need to be laid out in advance. Use the OPEN MINDS seven-step best practice process for acquisitions (see When Thinking Merger & Acquisition, First Think Strategy: A Best-Practice Approach To Acquiring Another Organization).

#3 – Use Experienced Talent

Most organizations don’t have executives with expertise in the wide range of collaborations, so engage the expertise you need. Experience and competence in all components of the M&A process—from strategy to integration—are essential. Get the advisors you need—on identifying and vetting partners, due diligence, legal issues, political ramifications, integration planning, etc.

#4 – Be Deliberate In Partner Selection

Your planning process and your process for executing the collaboration will, hopefully, make for deliberate partner selection. This doesn’t mean you need to act slowly, but you need to act deliberately—there is a big difference. Do all your homework and execute the process, and then act with haste (either to continue or to abort) once that process is complete.

#5 – Be Sure All Collaborators Are Clear (And In Agreement) About The Objectives

What does your organization need from the collaboration? What about your potential partner? If the goals of the potential partners don’t line up at the start, you can save the time and expense of due diligence by ending discussions.

#6 – Expect To Give & Receive Full Disclosure During Due Diligence

Due diligence involves an investigation and assessment of the benefits and risks associated with a proposed merger or acquisition. Communication is the name of the game, and the only way for a positive business relationship is to practice full disclosure. If you’re having “trust” issues at this stage, the collaboration may not have a great future anyway.

#7 – Allow Decision Making To Evolve Through The Process

Collaborations need to be an extension of strategic plans, and strategic plans need to be flexible. At every step of the way, organizations need to be able to ask, is this what we want or could we do this differently and better.

#8 – Build In Time For A Competitive Process

Think outside of the box in terms of collaboration models and potential partners. Allow the time for shopping around for possible partners, considering more than one provider organization as a potential partner. The first opportunity may not necessarily be the best fit.

#9 – Design A Detailed Integration Plan For Your Merger Or Acquisition

Post-merger integration is not something that comes naturally, and it won’t happen without a detailed plan. And, the plan needs to be more than a handshake between chief executive officers. It needs tactics, and assigned responsibilities, and most of all, it needs a budget. Organizational integration won’t succeed when it is just another priority for already busy staff.

#10 – Prepare For Questions From Stakeholders

In every merger or acquisition, you expect someone to be unhappy about it. Prepare for questions from consumers, donors, referral sources, payers, regulators, and the press.

Does this cover everything? Far from it—every provider organization collaboration will be unique, but these guiding principles provide a framework for a successful M&A strategy.

By Monica Oss, Chief Executive Officer, OPEN MINDS

 
 

When it comes to mergers and acquisitions (M&A), it’s easier to “do the deal” than it is to make the deal work. That was my takeaway from the session, Making Mergers & Acquisitions Work — Perspectives From Executives Post-Mergers, at The 2022 OPEN MINDS Mergers, Acquisitions & Affiliations Summit featuring Nicholas Riehl, General Counsel and Development Officer at ncgCARE and the LifeSkills team of Joe Dan Beavers, President and Chief Executive Officer and Eric Embry, Chief Operating Officer. The question for these seasoned executives was—how do they make a merger or acquisition “work”? And we got a firsthand look at what is involved.

Virginia-based ncgCARE is the parent organization for a network of seven behavioral health provider organizations providing community-based treatment in 78 locations across five states— with over $100 million in annual revenue. ncgCARE initially created an acquisition strategy to decrease its dependence on one payer, the Commonwealth of Virginia, following an unexpected rate cut. Since that initial acquisition, they completed a total of six acquisitions in 18 months. Their goal—become big, diverse, and statewide in every state they are in.

Kentucky-based LifeSkills is a non-profit community mental health center serving ten counties with a full continuum of community-based behavioral health and intellectual and developmental disabilities (I/DD) services. Their original merger was with Pennyroyal Center in 2019, which created one of the largest behavioral health organizations in the state. That merger also sparked the interest by three other organizations in affiliation and let to the creation of the Community Health Network, a separate organization established through a “member substitution agreement.”
 

In discussing their experience, the three executives drew from several years and many transactions. I took away seven important lessons.

Lesson #1—Much of your integration plan happens before you do the deal. Much of the success of M&A is having the right planning for both strategy and implementation. In planning the deal, setting a shared vision is critically important and will serve as a guide for agreement on future issues of both strategy and implementation.

“Whether it was our merger or our affiliations, one of the catalysts for success was really keeping our individual egos in check. LifeSkills and the Pennyroyal Center were able to show how our leaders could work together effectively. That helped to assure others that we could be trusted, foster collaboration and have open dialogue,” noted Mr. Beavers. “Getting to that point of trust so we could have the initial conversations were keys to bringing the Community Health Network of Kentucky together.”

Mr. Embry added, “You need to trust the work that brought you to the point of executing the agreement. Knowing that the service lines compliment the organizations and that the numbers make sense allows you to overcome the hurdles when you actually merge.”

Lesson #2—Mergers and acquisitions require capital. Mergers and acquisitions have many costs—both to do the deal and to pay for the integration. According to the speakers, the costs of a transaction will be about $300,000 to $500,000, regardless of size, and that is before the operational costs of physical integration. Making sure there is enough money to get the deal done demands setting and following a budget.

Lesson #3—Develop a detailed integration plan after the deal closes. When a deal closes, a critical next step is developing a detailed integration plan. It’s important to set goals, timelines of achieving those goals, and allocating the necessary resources needed for each step. Mr. Beavers spoke about the importance of being humble about the integration process and make sure the goals aren’t “too big, too fast.” All three speakers agreed that a common mistake is to attempt to centralize systems and models unnecessarily instead of taking what works well and keeping it.

“Not having a clear vision is a recipe for disaster,” noted Mr. Riehl. “Know your metrics and get your systems in place before you start. But be prepared to be adaptive. What might be right on the onset, might not be right three years in. Each situation is unique and should be treated as such.”

Lesson #4—In integration planning, set guardrails for every team member. The period following a merger usually has several big changes in organizational structure, policies and procedures, and process. It is important for each management team member to know what they can and cannot do. Who can make what decisions? Who can sign contracts? Who can hire? Who signs off on policies? Clarity is important at the start.

Lesson #5—Acknowledge complexity and be flexible. Every merger or acquisition is complex—and each is unique. That means that even the most experienced executives will encounter new situation that they haven’t anticipated. The speakers concurred that acknowledging that the unexpected is likely important—along with being prepared to change course when needed. “Smart flexibility can solve the problems.”

Lesson #6—Communication is key, and it’s never enough. Like all periods of change, communication during implementation of M&A is critical. Communication planning should be an integral part of the overall implementation plan.

“The financial analysis and due diligence are always important, but you can get those parts right and still struggle if the communication misses the mark,” shared Mr. Beavers. “With our merger, we were intentional about communicating early and often, plus as transparently as possible. We included our teams, our boards and our key community stakeholders as we worked up to our public announcement. That communication groundwork helped establish trust and provide the foundation for our integration.”

Lesson #7—Simplicity is a virtue. Any M&A deal—and change—is complicated and confusing for most team members. At the outset, try to simplify every plan and process.

Many executive teams of community-based health and human services organizations will need to decide whether to merge in the years ahead and figuring out how to make sure it’s a success will demand a lot of thought and preparation. A last piece of advice from Mr. Embry, “If you’ve never been through the process, don’t skimp on outside expertise. What you don’t know will eventually cost you. A good consultant minimizes the risk.” For more on planning successful collaborations—whether mergers, acquisitions, or other affiliations, check out these resources in The OPEN MINDS Industry Library:

• Considering M&A? What Not To Do
• What To Grow? How To Grow?
• To Merge Or Not To Merge—What Are The Questions?
• Are You Ready For A Merger? Five Decisions To Make First
• Growth Strategy = Tech Strategy
• For Strategic Growth, Think Investment
• Growth Readiness – The New Competitive Advantage
• Second Thoughts About Consolidation?
• The Next Merger & Acquisition Tidal Wave
• Big Enough To Compete? How CFOs Answer That Strategic Question