How Hospitals Can Choose the Right M&A Opportunity

A challenging economic environment has prompted several health systems to divest, creating M&A opportunities for systems looking to grow. However, potential buyers should assess a range of factors to find the right targets for acquisition.

Look for:

Solid Financial Fundamentals

Financial performance is critical in your decision. A robust financial audit helps define the performance you realistically expect post-acquisition, and helps predict how a transaction impacts your system’s overall financial well-being.

Consider tracking a range of metrics to measure current financial performance — and predict profitability going forward.

KPIs to consider:

Debt-to-equity ratio
Gross revenue
Profit
Cash flow and liquidity
Access to capital
Reinvestment

Alignment Between Leadership and Staff

Talent plays a pivotal role in the success of any transaction, and friction between leadership and staff may signal trouble ahead. Examine employee metrics to assess the strength of an organization’s talent management strategy, including:

Employee retention (clinical and nonclinical staff)
Recruitment costs
Employee Net Promoter Score (eNPS)

Tip: Look for subtle signs of talent management struggles, too, including:

Job stress/rates of reported burnout
Job satisfaction
Time spend

Organizational Compatibility

While no two organizations are identical, the ideal M&A opportunity should make the most of both entity’s strengths.

Consider:

The organization’s mission:

Do you share business goals?
Do you have a complementary approach to care?

The workplace culture:

Does the target’s talent management strategy align with yours?
Does the target offer expertise that aligns with yours, without creating redundancies?

Backend processes, technologies, and workflows:

Does the target use technologies compatible with your current tech stack?

If not, how much will it cost to integrate?

What’s their maturity level for automation compared to your organization?

Additional Market Opportunities

The ideal M&A target should allow you to gain market share without raising additional regulatory hurdles. Merging with an out-of-state hospital, for instance, may provide a path to growth when additional in-state growth is no longer possible.

Get the Support You Need to Feel Confident in Your Next Transaction

Whether you’re just starting to consider a transaction or you already have a target in mind, Eide Bailly is here to support you each step of the way. We’ll help you weigh your options to find the right fit for your health system’s mission — so you can focus on delivering care.