The language used to describe the coming together of organizations through mergers and acquisitions is often similar to that used to describe marriage. In many ways, combining two companies does resemble matrimony. Unfortunately, like marriage, an incompatible match can lead to a messy divorce.
The frenzied pace of consolidation in the healthcare industry continued in 2015, increasing by 3 percent with 102 transactions, compared with 99 transactions in 2014, according to healthcare consultancy Irving Levin Associates. In the first quarter of 2016 alone, hospital M&A activity was up 13 percent from the same period the year prior.
Although it's too early to tell whether these recently announced deals will last, we know that many do not. Or, while some may not exactly end in divorce, they don't yield as much value as the suitors initially hoped. Why? For the same reason many other interpersonal relationships fail: Companies focus too much on what they can get from an acquisition instead of what they have to give, according to the Harvard Business Review.
When an organization is in a buying mode, it is often also in a taking mode, which could prompt the seller to elevate its price to increase the future value it stands to gain from the transaction. But if the buyer has something that can enhance the seller's competitiveness, the picture changes, according to the report. If the seller recognizes that the acquirer — and no one else — can make that enhancement, the acquirer will earn higher rewards from the deal.
There are four ways an acquirer can improve its target's competitiveness, according to the Harvard Business Review.
1. Be a strategic provider of growth capital. Being a strong investor increases the scope for creating value. In fast-growing or new industries, which experience lots of competitive uncertainty, investors that understand their domain can lend sellers significant value by providing them with the means to expand certain service lines, thereby enhancing their competitiveness.
2. Provide superior managerial oversight. Providing the seller better strategic direction, management and process disciplines can also have a marked effect on a seller's competitiveness. For example, since its formation in 1984, manufacturing company Danaher has acquired more than 400 companies and has grown to a $21 billion organization with a market capitalization above $60 billion, according to the report. Observers attribute Danaher's success to the Danaher Business System, which centers on the company's Four Ps: people, plan, process and performance. This system is implemented in every business Danaher acquires and becomes the foundation upon which each is led.
3. Redeploy personnel to transfer valuable skills. An acquirer can also significantly improve the performance of the seller by directly transferring a specific skill, asset or capability through the distribution of personnel, according to the report. However, assuring the two companies can mesh cultures is essential to make this strategy successful. It would be difficult to redeploy personnel successfully if the acquired company isn't welcoming toward them.
4. Share capabilities. Sharing — rather than transferring — a capability or an asset can effectively increase an acquired company's competitiveness as well. This does not involve relocating personnel or reassigning assets, it merely makes them accessible. But according to the Harvard Business Review, success in this form of giving rests in understanding the underlying strategic dynamics of the acquired company and making sure the sharing actually occurs.