The importance of cultural compatibility is a common theme in any discussion of M&A success or failure, as is establishing a basis for trust between organizations.
When healthcare organizations enter into merger, acquisition, and partnership (M&A) activity and begin the difficult task of performing due diligence, there are no guarantees that a formal agreement will be concluded. There are a number of ways that a potential deal can fall apart, both financially and operationally, and both sides must come to a consensus for a deal to move forward.
According to a recent 2019 HealthLeaders Mergers, Acquisitions, and Partnerships Intelligence Report, on the financial side, respondents say that the top three reasons that an M&A involving their organization was abandoned before or during the due diligence phase are concerns about assumption of liabilities (23%), regulatory issues (22%), and concerns about risk/revenue sharing (20%).
Related: Is Healthcare's M&A Trend Softening?
Note that the response for regulatory issues is nine percentage points higher than in last year’s survey, suggesting that recent high M&A activity may be attracting government attention.
On the operational side, respondents indicate the top three reasons that an M&A involving their organization was abandoned before or during the due diligence phase are mistrust between parties (30%), concern about governance (27%), and incompatible cultures (21%). This represents a change in sequence over last year’s survey where the order was incompatible cultures (30%), concern about governance (24%), and concern about operational transition plan (21%).
The importance of cultural compatibility is a common theme in any discussion of M&A success or failure, as is establishing a basis for trust between the two organizations.
Related: Achieve Financial and Clinical Impacts Through Mergers
Kevin Brown, president and CEO of Piedmont Healthcare, a Georgia-based nonprofit health system with 11 hospitals and nearly 600 locations, and advisor for the HealthLeaders survey, says that it’s critical to do your homework up front on these key issues, and he says not to underestimate their importance or assume that differences can be easily overcome later.
“We do a lot of work on the front end to make sure that it’s going to be a success on the back end,” says Brown. “If we can’t get through the front end, we move on to other opportunities.”
Jonathan Bees is a research analyst for HealthLeaders.
KEY TAKEAWAYS
Respondents of a recent HealthLeaders survey say a top reason that an M&A involving their healthcare organization was abandoned before or during the due diligence phase is incompatible cultures (21%).
On the financial side, respondents indicate that an M&A was abandoned before or during the due diligence phase because of concerns about regulatory issues (22%).
The response for regulatory issues is nine percentage points higher than in last year’s survey, suggesting that recent high M&A activity may be attracting government attention.