What Works in Strategic M&A?

At KLAS, our primary mission is to help providers be successful in the healthcare world. But as a secondary mission, we are also passionate about helping providers, investors, and vendors involved in mergers and acquisitions avoid some of the train wrecks and the buyer’s remorse that we have seen after transactions. KLAS had published a report about 10 years ago on this same topic, and we decided that we needed to once again provide that thought leadership to the marketplace.

The purpose of the Strategic M&A 2019 report was to dig into approximately the last seven years’ worth of mergers and acquisitions—larger strategic transactions—and to evaluate and correlate the data to show the industry what has been happening before and after these transactions. What has and hasn’t worked, and why?

Surprises

One of the most surprising things to me was that as we aggregated the data, approximately 40% of all the transactions we watched had an increase in performance-satisfaction scores post-acquisition, and about 20% stayed the same.

So approximately 60% of the transactions either improved satisfaction or resulted in no change. I actually thought the increased satisfaction would be a lower percentage. It always seems like we hear only about the negative things that are happening; we don’t often hear about improvements being made after mergers and acquisitions, but that certainly happens. 

Should We Stay or Should We Go?

Pain is more acute, and providers want to fix that pain as fast as possible, even if it means having to jump ship. Providers have to weigh the ultimate costs of jumping or remaining on board. There’s an allegory in which a person hears a dog howling for days. When the person confronts the owner to figure out the problem, the owner says that the dog is sitting on a nail but won’t move because the pain isn’t bad enough. When we apply this analogy to healthcare, the challenge is that nails can be anywhere. Providers sometimes must decide whether to deal with their current pain or risk landing on a bigger nail. 

Providers want to know what will happen to the vendor—and subsequently to them—after a merger or acquisition. Sometimes a company tries to turn an acquisition into their own thing. But I have seen that if the acquiring vendor leaves the acquired vendor alone, that vendor can continue to operate and perform well, and the providers will remain satisfied if they were already satisfied. 

Strategy for the Future

The principles that KLAS has identified in the Strategic M&A 2019 report will help ensure smoother transactions after an acquisition or merger. If you want insights into better performance satisfaction in the future, please read the full report.

But strategic mergers and acquisitions are just one side of the coin. Stay tuned for a future report on what has happened with venture capital and private equity investments in companies.




     Photo cred: Adobe Stock, Andrey Popov