Amid the healthcare sector’s continued struggle, mergers and acquisitions are expected to revitalize the industry significantly. However, the intricacies of navigating M&A in healthcare are more complex.

Successful M&A requires meticulous scrutiny of revenue quality, earnings analyses, and balance sheet details. This thorough examination empowers buyers to make intelligent, strategic decisions and ensures a smooth integration.

Identifying the Right Partner

A healthcare-focused advisory firm well-versed in the nuances of M&A can help clients navigate this process and identify potential partners. They should also be able to provide strategic advice and guidance that considers the broader market environment.

The flurry of healthcare mergers, acquisitions, and consolidations that have been making headlines in recent years is expected to continue. 

Healthcare M&A advisory firms can assist with this by conducting thorough research to identify opportunities that align with strategic objectives, such as expanding geographic reach or enhancing clinical capabilities. They can also provide expertise in assessing and valuing businesses.

Conducting Due Diligence

Regulatory approvals and the need to comply with ever-changing healthcare laws can significantly impact business valuations and M&A deal structures. Influential advisory firms can assist clients with the due diligence to ensure a successful transaction.

M&A activity in the healthcare industry shows no signs of slowing down. This is especially true in the lower middle market, where private equity firms and management services organizations continue to target smaller physician practices with solid patient bases in densely populated markets.

These transactions require extensive due diligence to assess potential targets’ strategic fit, operational performance, and financial strength. An excellent advisory firm can help streamline the process by providing comprehensive research and analysis for clients. They can also identify issues impacting the deal terms, enabling clients to make an informed decision and negotiate successfully.

Negotiating the Terms

Hospitals and health systems increasingly focus on consolidation to grow their footprint and achieve economies of scale. This has led to large mergers, including several multi-billion dollar deals in the past few years.

However, some experts have warned that these cross-market deals may lead to price increases, mainly as larger systems can negotiate higher prices with insurers. This could hurt patients and reduce profitability for both acquired and acquiring organizations.

To avoid these issues, it’s essential to have an experienced advisory firm help with negotiations of the terms. Fortunately, there are many advisors with the expertise to do so.

Integration Planning

While the healthcare M&A market may be volatile, strategic planning and a thorough due diligence process can help organizations make sound decisions. In addition, advisory firms can assist with navigating regulatory and legal issues that impact the deal.

For instance, hospitals seeking to expand their services often pursue home health and hospice partners to grow patient numbers. Such service line partnerships can add economies of scale and help hospitals comply with federal antitrust laws prohibiting hospital consolidations.

Influential advisory firms understand how healthcare regulations affect valuations, buying and selling of businesses, and strategy. 

Closing the Deal

The healthcare industry is no stranger to mergers, acquisitions, and partnerships. And, despite the recent pause in M&A activity due to lower valuations, these trends are expected to continue into 2024.

The pursuit of operational and strategic value often fuels M&A in healthcare. This is generally achieved by achieving economies of scale or increasing productivity through increased volumes.

As the HCLS landscape continues to evolve, companies must be able to identify the best growth opportunities and achieve the highest valuations possible. 

Jane