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Let's Make a Deal: 7 Dimensions of a Winning M&A Play

Analysis  |  By Delaney Rebernik  
   May 09, 2024

M&As are on the rise. Take a page from one exec's playbook on how to find your perfect partnership.

M&As are all the rage.

The past 12 months have seen 81 health system deals announced—the highest volume in the past few years, according to an April report from healthcare investment banking firm Cain Brothers.

The first quarter of 2024 has been especially busy, racking up 18 prospective transactions, worth $10 billion for buyers. That's a 50% uptick in deal volume and 194% increase in revenue compared to the same period last year.

For the savvy CFO, it all spells opportunity to forge new paths to delivering high-quality care on "record-small margins" that many are still seeing, says Kevin Lenahan, CPA, FHFMA, executive vice president and chief business and strategy officer at Atlantic Health System, which has seven—soon to be eight—hospitals across New Jersey and Pennsylvania.

In a January letter of intent, the $3.7B non-profit system unveiled plans to welcome Saint Peter's Healthcare System, a $583M Catholic not-for-profit with a single, 478-bed hospital in New Brunswick, New Jersey, into the fold. Lenahan hopes the two organizations will finalize a definitive agreement within the next few weeks.

Ahead, more on how to find—and align—the right fits from someone going through it.

Meeting the moment

Transitioning from the pandemic's peak, everyone is "trying to figure out what the new norm is," and "feeling the pinch," Lenahan says.

Although they're easing in some areas, expenses are still high on everything from labor to transportation, and payer compensation—which is often locked in two to three years out on the private side—is failing to keep up with inflation. "It's very difficult to make up that differential cost," Lenahan says. So joining forces to streamline operations can make all the difference.

Beyond the bottom line, M&As can help systems honor their commitments to quality, affordable care, Lenahan says, by opening additional access points or new specialty services.

Charting the course

Once Saint Peter's and Atlantic Health have signed their definitive agreement, next steps include garnering state approval according to the Community Health Care Assets Protection Act, which Lenahan said could take 12–14 months.

Additionally, he's hopeful the deal will pass muster with the Federal Trade Commission (FTC), which blocked Saint Peter's proposed merger with RWJBarnabas Health in a 2022 complaint, citing anti-competitive practices that could arise from merging New Brunswick's only two hospitals.

In contrast, Atlantic Health and Saint Peter's have "no overlapping territory," Lenahan says. "In my mind, this is a green light." The system's attorneys agree, he adds.

Building on a track record of success

The Saint Peter's deal would extend Atlantic Health's lineage of successful integrations: The system acquired Chilton Medical Center in 2014 and, within a year, helped the location top the list of Jersey's Best hospitals with fewer than 350 beds, a distinction it's held eight years running. CentraState, which became part of the system in 2021, also charted in its category, as did four additional Atlantic Health locations.

Other integration highlights include launching robotics surgery at Newton Medical Center, which came aboard in 2011, and growing Hackettstown Medical Center, which joined in 2016, to accommodate more admissions than they've seen in a decade, and more ED patients than ever before, Lenahan notes.

Successes aside, Atlantic Health has been selective in adding hospitals, instead focusing most of its expansion efforts on new and acquired ambulatory centers that can help "reduce the total cost of care" and "create more access points," Lenahan explains.

They've been adding specialty centers, which feature services like urgent and primary care, radiology, PT, lab, cardiology, and oncology, at a rate of 1–2 per year over the past five years and plan to continue at this clip.

"Let's meet the patients where they are," Lenahan says. "That's what drives us."

Finding the perfect match

When assessing potential partnerships, Lenahan looks for fit across a few key dimensions:

Quality: It's Atlantic Health's top focus in potential partnerships. System decision makers consider ACO, state, LeapFrog, and Magnet award data, and they aren't afraid to "walk away" from potential opportunities with organizations that don't show progress or promise on the quality front. "Too many people make gut decisions," Lenahan says. "Let the data support what you're trying to do." Also let it check you on your biases. "Be open that you may have some," he advises. "When you look at the data, it will identify new processes, new ideas, and new suggestions."

Beyond reviewing metrics that matter, consider relationships and past work together. As an example, Lenahan has "a lot of respect" for Saint Peter's mission and leadership because he's known CEO Leslie Hirsch for over a decade and partnered with the system on initiatives like the Healthcare Transformation Consortium, in which New Jersey–based health systems team up to administer their self-insured employee health plans.

Culture: For Atlantic Health, that means shared values must amount to more than lip service. "We believe in population health. If you […] believe mostly in fee-for-service, it's not going to work here," he explains. "So you've really got to ask probing questions." And once a deal is closed, the real cultural work begins. "We will send our Atlantic team down to Saint Peter's to be the at-the-elbow support, so they're going to get to meet their Atlantic brethren," Lenahan says. "That will assimilate the cultures really well."

Geography: Saint Peter's location fills a "white space" in Atlantic Health's central Jersey assets, Lenahan says, which makes the system more "attractive" to partners like insurance companies and employers, plus more convenient for patients who already visit Atlantic Health's physician offices in the area.

When considering geographic needs, take the long view, Lenahan advises. "If you do one transaction, does that prohibit you from doing another one because now, all the sudden, there's another territory that you can't do?"

Business structure: Pay attention to operational and organizational nuances that'll need to be codified, Lenahan advises. As an example, Saint Peter's, a Catholic-run institution, is bound by the Ethical and Religious Directives for Catholic Health Care Services, so when it comes to the balance sheet, Atlantic Health will designate the location as an entity under the system rather than as part of AHS Hospital Corp, Lenahan says, to "honor the Catholic integrity agreement for Saint Peter's at Saint Peter's."

Cyber security: Given the high-profile, higher-stakes breaches as of late, strength of cyber management is an increasingly vital consideration when vetting potential partners, Lenahan says. Atlantic Health now engages an independent contractor to conduct cyber analysis on all entities they're interested in acquiring "because once you're in the system, you're in the system, and you know, we want to make sure we identify anything up front."

Infrastructure, both the physical and technological kind: Once the deal closes, early integration goals include transitioning the new joiner to Atlantic Health's EHR instance "as quickly as possible," Lenahan says. "All our partners go on Epic so that we can just track those patients to make sure they're getting the right care in the right spot for us." When it comes to Saint Peter's physical infrastructure, Lenahan anticipates early investments will center on building out the location's ambulatory network and connecting it with the system's assets in neighboring regions.

Openness: Though rigor in dealmaking is vital, so too is curiosity. "Be open-minded," Lenahan says. "Every acquisition we've ever made in Atlantic, particularly the big ones, we've learned something new, […] and it enhanced all of Atlantic."


Delaney Rebernik is a freelance editor for HealthLeaders.


M&As are on the upswing—and for good reason, as leaders forge new paths to deliver quality care on tight budgets, says one CFO who's brokering a deal to bring a $583M hospital into his $3.7B system.

Finding the right partner requires a keen eye for fit on dimensions ranging from quality and culture to geography and business structure, plus an open mind to counterbalance all that the rigor.

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