In order for hospital executives to maximize the value of a transaction, it is important for them to utilize a systematic approach and apply focused due diligence. Rushing through any step could jeopardize its value — financial and non-financial. In a webinar hosted by McGuireWoods, John Reiboldt, managing director of Coker Capital Advisors and Geoffrey Cockrell, JD, partner at McGuireWoods, discussed six tips for hospital executives to maximize the value of a transaction.
Do not get ahead of yourself
"The biggest factor I see is hospital executives saying they talked to a potential partner and all they need is advice on how to move forward. At this point, they are already a mile down the road. [Coker Group] works with hospital boards and executives so they take a step back. You need to know where you are before you know where you're going," says Mr. Reiboldt.
In order to avoid moving too quickly, Mr. Reiboldt advises hospital executives to ask the following questions.
• What do you want to accomplish?
• What are your main goals?
• Do you want to maintain healthcare in the community?
• Do you want a partner to invest in the community?
• Do you want to maintain jobs at the hospital?
• Do you want to minimize ongoing losses?
"[Hospital executives] need to understand what their hospital needs to derive from a transaction. This is one of the biggest, most often missed points," says Mr. Reiboldt.
Be systematic
According to Mr. Reiboldt, a hospital transaction can be an emotional process, so conducting a systematic process can help executives understand and pursue the outcomes the hospital needs in order to remain operational — without getting caught up in the emotion that may accompany a transaction. "Although emotion may play a role regardless, keeping the process as technical as possible will help. Just check things off the list," says Mr. Reiboldt.
Use experienced advisers early
When hospitals get ahead of themselves, they may overlook opportunities that could be beneficial. For this reason, Mr. Cockrell recommends that hospitals engage experienced transaction advisers in the preplanning phase. "A hospital may think they have considered all potential options, but an experienced adviser could expand the choices the hospital may consider. For example, I was working on a transaction in the Midwest with a fairly rural non-profit hospital. The hospital was eventually acquired by a large east coast health system. This transaction was not on the hospital's horizon initially, and it ended up being the best choice," says Mr. Cockrell. What may feel like the most obvious candidate may be wrong for reasons that are not obvious initially. Taking as step back to think more broadly is critical.
"At the beginning, you may build your transaction working group with members of the executive team, members of the board and the hospital's legal counsel. Then, you'll need to bring in someone who manages the transaction process for a living — it is also all they do. You need that person in there especially for the regulatory and/or health department review process. The final person in the group should be a finance expert or investment banker who knows how to run a competitive process," says Mr. Reiboldt.
While a hospital may need a specific and small team for the beginning stages of the deal, later on in the process executives may want to bring in other constituents. "Different constituencies of the transaction — medical staff, the nurses union, joint venture partners or local government members — may have different thoughts and views on what is going on. While they aren't part of the working group, keeping an eye on them will help. The last thing an executive team wants is to get bogged down with material that can cause delays and could kill a deal," says Mr. Cockrell.
Mr. Cockrell agrees. "You do not know who the right suitor will be. There is a lot of benefit to a systematic process. You may think one hospital is a perfect match, but it is hard to gauge which hospital will really be the right partner without a systematic, diligent process," says Mr. Cockrell. "Make sure you understand the issues or all the skeletons in the closet so to speak. They don't come out of nowhere. Running due diligence brings them to light at the front end."
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1. Conduct a preplanning process
Preplanning allows hospital executives to consider problems and issues before undertaking a transaction. There following three tips will help hospital executives optimize the preplanning process.Do not get ahead of yourself
"The biggest factor I see is hospital executives saying they talked to a potential partner and all they need is advice on how to move forward. At this point, they are already a mile down the road. [Coker Group] works with hospital boards and executives so they take a step back. You need to know where you are before you know where you're going," says Mr. Reiboldt.
In order to avoid moving too quickly, Mr. Reiboldt advises hospital executives to ask the following questions.
• What do you want to accomplish?
• What are your main goals?
• Do you want to maintain healthcare in the community?
• Do you want a partner to invest in the community?
• Do you want to maintain jobs at the hospital?
• Do you want to minimize ongoing losses?
"[Hospital executives] need to understand what their hospital needs to derive from a transaction. This is one of the biggest, most often missed points," says Mr. Reiboldt.
Be systematic
According to Mr. Reiboldt, a hospital transaction can be an emotional process, so conducting a systematic process can help executives understand and pursue the outcomes the hospital needs in order to remain operational — without getting caught up in the emotion that may accompany a transaction. "Although emotion may play a role regardless, keeping the process as technical as possible will help. Just check things off the list," says Mr. Reiboldt.
Use experienced advisers early
When hospitals get ahead of themselves, they may overlook opportunities that could be beneficial. For this reason, Mr. Cockrell recommends that hospitals engage experienced transaction advisers in the preplanning phase. "A hospital may think they have considered all potential options, but an experienced adviser could expand the choices the hospital may consider. For example, I was working on a transaction in the Midwest with a fairly rural non-profit hospital. The hospital was eventually acquired by a large east coast health system. This transaction was not on the hospital's horizon initially, and it ended up being the best choice," says Mr. Cockrell. What may feel like the most obvious candidate may be wrong for reasons that are not obvious initially. Taking as step back to think more broadly is critical.
2. Build a strong team
Once hospital executives make the decision to move forward with a transaction, they need to build a strong transaction team. In order to maximize the potential of the deal, Mr. Cockrell and Mr. Reiboldt recommend choosing a few key people for the beginning of the transaction, and then adding others into the process as it develops."At the beginning, you may build your transaction working group with members of the executive team, members of the board and the hospital's legal counsel. Then, you'll need to bring in someone who manages the transaction process for a living — it is also all they do. You need that person in there especially for the regulatory and/or health department review process. The final person in the group should be a finance expert or investment banker who knows how to run a competitive process," says Mr. Reiboldt.
While a hospital may need a specific and small team for the beginning stages of the deal, later on in the process executives may want to bring in other constituents. "Different constituencies of the transaction — medical staff, the nurses union, joint venture partners or local government members — may have different thoughts and views on what is going on. While they aren't part of the working group, keeping an eye on them will help. The last thing an executive team wants is to get bogged down with material that can cause delays and could kill a deal," says Mr. Cockrell.
3. Slow down, spend time on partner selection
While it is logical for an executive team to want to keep momentum in the transaction process, nothing can substitute for applying due diligence and a systematic method when selecting a partner. "There are a variety of entities that could be a great partner — for-profit, non-profit or private equity fund. It goes back to the planning aspect of the process and laying things out," says Mr. Reiboldt.Mr. Cockrell agrees. "You do not know who the right suitor will be. There is a lot of benefit to a systematic process. You may think one hospital is a perfect match, but it is hard to gauge which hospital will really be the right partner without a systematic, diligent process," says Mr. Cockrell. "Make sure you understand the issues or all the skeletons in the closet so to speak. They don't come out of nowhere. Running due diligence brings them to light at the front end."
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Healthcare M&A Activity: Key Trends for Transactions, Valuation of Ambulatory Services3 Successful Strategies to Deal With Potential M&A Landmines
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