Why Financial Success Eludes Majority of Healthcare Mergers

Clarity, Not Urgency
Saxena says it all starts with what you ultimately want to achieve as an organization, and a sense of clarity—not urgency—about how the pieces of any acquisition will fit into that vision. That kind of long-term vision works for both acquirers and especially for those looking to be acquired, he says.

"The first thing the smaller guys need to do is make sure they can't go it alone or through sharing some capabilities with someone else," he says, referencing collaborations short of a merger. "Can they survive? Is there a need or niche in the market they're fulfilling? If not, their reason for existence as a standalone entity might not be there."

Maybe you serve the underprivileged. Maybe you're in attractive geographical areas that big players might not already be in. If you don't have those advantages, maybe you do need to court an acquirer.

"What are the strategies of the folks they would be partners or bought by, and what do they have that might fit into that? Continue to invest in those elements so they are attractive to potential acquirers," says Saxena.

The study does not include data for longer time periods, suggesting the data has been selected to deliver a bit of a headline number. But given even these statistics, it's clear that mergers should be contemplated with caution. The study does offer some detail about specifics of mergers that have worked out financially. To wit:

• Combinations involving academic medical centers had significantly lower outperformance rates versus all transactions (20% as acquirer, 18% as target)
• Hospitals acquired by large systems (15+ hospitals) had a 51% outperformance rate vs. 34% for hospitals acquired by smaller systems (<15 hospitals) suggesting some support for scale.