It’s true, the right merger or acquisition can generate significant benefits for your organization. But how do you know if a deal is right for you? Poorly thought out deals can lead to reduced operational efficiency and care quality. In extreme cases, bad mergers can collapse entirely, leading to costly divestitures and alienation of care partners.
Mergers and acquisitions can’t simply be your CEO’s hobby. With an enormous amount of M&A opportunity to look forward to in 2014, now is the time to invest in a dedicated function to manage your M&A pipeline.
- Register now for "10 Tactics to Build a High-Performance M&A Team," a new webconference on March 6.
We recently published 10 tactics to help organizations make better decisions about which deals to pursue. Read on for a sneak peek at the top three from our new white paper, Building a Best-In-Class Hospital M&A Function.
1. Invest in a dedicated team
Given the inherent complexity of M&A strategy development, dedicating resources specifically to M&A is critical. This means creating a dedicated team and executive role with a clear mandate to drive the organization's strategy. Members of the team must take responsibility for:
- Overall strategy
- Management of individual deals
- Supporting performance improvement
To efficiently allocate these responsibilities across available resources, you'll need to create three core roles on the MA team: an executive to oversee the direction of the M&A function and liaise with senior leadership, individual managers to oversee each deal, and M&A analysts to conduct market research, build business cases, and conduct valuation and risk analyses.
- Ask Tom about how we can help with your corporate strategy.
2. Use a framework to efficiently vet opportunities
Even with a large internal M&A team, it isn't possible to rigorously analyze every lead. A better approach is to build a screening framework. This should include clear benchmarks for strategic relevance, financial return, and cultural fit as well as a limited set of intangible “non-negotiables” that automatically kill any deal.
Below are five areas where the framework should give clear, fact based guidance as to whether a potential acquisition is worth further scrutiny.
Key questions for the deal framework:
- What is an acceptable strategic business case for acquiring an organization?
- What financial benchmarks does an organization need to meet to be a potential acquisition?
- What cultural compatibility benchmarks does a potential acquisition need to meet?
- What are acceptable vs. non-acceptable regulatory hurdles for acquiring an organization?
- What are the immediate deal-breakers that would make a deal a no-go?
3. Make sure you’re learning from each deal
Experience enhances performance only when lessons and insights from previous deals are codified. Begin with a formal, evidence-based analysis of past deals and end with either the creation of knowledge assets or the improvement of hardwired processes. Building a single knowledge asset allows lessons and insights to be shared across units and managers, and promotes real organizational learning.
One progressive institution that has taken a comprehensive approach to preserving and codifying lessons from past deals is Cromwell Health System. At Cromwell, lessons and insights are collected, both during a deal and retrospectively, into a single, widely available knowledge asset that is then consulted for advice and training for new and existing M&A team members in preparation for future rounds of deal-making.
More on Mergers and Acquisitions
To learn more about the Advisory’s Boards resources to support hospital mergers and acquisitions, read our research briefing, Building a Best-in-Class M&A Function.
Then, check out our full suite of M&A resources at advisory.com/corporatestrategy.
LEARN MORE ABOUT M&A
Tom Cassels directs strategy and best practice research for hospital and health system executives across the nation on topics ranging from hospital finance to strategic planning and clinical service innovation.
See all of Tom's blog posts.
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