Market pressures are motivating both hospitals and health systems to seek operational, strategic, or financial value through consolidation. The yearly number of hospital M&A transactions has grown over the past decade. While healthcare M&A slowed due to the COVID-19 pandemic, we are once again starting to see deal volume grow at a rate that’s overwhelming to many organizations. The overall transaction size of these deals is also growing, as many large organizations have announced mergers or acquisitions in the past few years.
The Need for a Modern M&A Approach
Despite this growth, the majority of organizations are, unfortunately, missing the mark.
According to Harvard Business Review, “ Indeed, companies spend more than $2 trillion on acquisitions every year. Yet study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.”
When costs are accrued along the M&A journey to a degree that degrades the value of the deal, intended value will not be realized. According to Forrester, the four contributing factors to an organization failing to realize its intended value are:
- Growth: Only 27% of deals resulted in margin improvement and revenue growth.
- Philosophy: Nearly half fail to achieve intended synergy due to the organization’s operating philosophy lacking discipline around operating metrics and consolidation.
- Management: A determining factor in an organization’s success is having the right leadership and an experienced team involved in the transaction.
- Skepticism: Executives are skeptical. Seventy-eight percent believe they can no longer rely on traditional M&A capabilities for digital transactions. There is a need to bring new techniques and drive predictability for these deals.
Because of this need for change, innovative leaders are looking for a more modern approach to M&A, focusing on data, artificial intelligence, and agility. Today’s leaders are searching for predictability through value driving empirical data that can help them choose the correct acquisition targets. Organizations are looking for different approaches to achieve value in a shortened timeframe. An elongated M&A timeline can cause employee morale, stock price, operating margins, etc. to suffer.
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Businesses often use M&A to expand their market presence and business scale by leveraging combined assets. Combining two companies’ assets, with the right guardrails in place, can yield optimized business processes, reduced redundancies, and broader market coverage opportunities.
M&A can be used as a fast and economical way to expand product and market breadth. Meaning It can add products and distribution channels or move current products into more appealing markets. This use of M&A brings economies of scale and faster product rollout.
An organization may choose M&A to increase efficiencies. When successful, M&A can reduce the cost of products or services by better allocating scarce resources, rationalizing org structure, and optimizing technology across the expanding enterprise.
Setting Your Organization Up for Success
With a need for a more modern M&A approach, technology is becoming a strategic differentiator. Successful organizations see technology as an asset that can deliver synergy and aid in their success. We are seeing organizations pull technology into the deal earlier in the process, during the due diligence/pre-close phase.
Organizations that engage their technology teams and leaders early during the M&A process reap early and long-term benefits.
A survey by Forrester found that 40% of decision-makers reported that their business unit/IT department used third-party technology strategy service providers in the past 12 months, ranking this category as the highest business strategy and execution area where expert consulting was employed.
READ MORE: Healthcare M&A: Pillars of Success
Partner with Perficient to leverage our existing skills and assets within the context of an M&A transaction to help your organization succeed where so many others fail. Our business architecture capabilities pinpoint how technology best services the needs of your business, operations, customers, and brand. With our data & analytics expertise, we deliver early insights into the M&A transaction while minimizing risk.
Our healthcare experts power process rationalization (e.g., corporate real estate, supply chain, purchasing, etc.). Program leadership brings enterprise-level know-how, built through our experience supporting the largest brands in the U.S. Our end-to-end capabilities combine a deep understanding of technology, architecture, and platforms, and we can bring your people and processes along as well.