Five questions to ask before considering a merger
If you haven’t thought through these five things, you are not ready to merge.
Financial pressure and increasing regulatory requirements have many practices looking at merging with another organization for a variety of reasons. But there are five key questions that every practice needs to consider before a merger, according to Aimee Greeter, MPH, FACHE, senior vice president, Coker Group Holdings LLC, who spoke at the Medical Group Management Association’s Medical Practice Excellence Pathways Conference.
Here are the five key questions:
As with all transactions, the first step should be determining the “why” of pursuing a merger/acquisition.
For a transaction to be successful, it will require significant physician and employee buy-in; thus, organizations should ensure there is adequate support for this strategy before pursuing
There are a host of reasons why a practice may consider a transaction, and it may be helpful to walk through an exercise of highlighting these reasons and discussing with stakeholders
Further, this will likely serve as a go forward assessment, determining whether any type of transaction (and then, which type) is right for the organization before spending considerable resources vetting opportunities
A merger can have many results. Are you looking to create a new company under a new name, or having one practice be absorbed by another? Will the groups operate the same as before, but just under one tax number?
Will this be an operational merger, with operations, economics, and governance consolidated within the new company? Will standardization occur across most functional areas?
What will the goals of the newly merged organization be?
Start with are there any anti-trust concerns. If there are none, go through every aspect of the business plan and work through the details on how the new organization will function.
This includes deep dives in:
- Organization
- Marketing
- Goals
- Mission/vision/values
- Financial projections
Just because someone approaches you about merging doesn’t necessarily mean they are the best choice.
Develop a list of potential partners and begin vetting the ability to work together as a merge entity. The type of merger will affect the level of planning and vetting required. The more streamlining and standardizations that will be done, the more vetting will be needed.
Once you decide on merging, a valuation will be required to support the transaction. This will be completed by a third-party with experience in health care. There are three possible valuation methodologies that may be used:
- Asset approach
- Income approach
- Market approach
Make sure you understand which approach will be used and why. Once you have that information, you will have a better idea of how long the process will take and when the organizations will officially merge.
