Real estate is often overlooked as a key strategic asset for healthcare systems during M&A transactions. It’s frequently neglected in favor of other important factors like earnings quality, key payor contracts, and market share.
However, when real estate is strategically leveraged during a transaction, it can offer significant opportunities for healthcare systems to achieve their strategic, operational, and financial objectives. Disregarding real estate considerations in the M&A process can pose significant long-term risks to an organization.
Amid the lasting effects of the pandemic, increasing regulatory scrutiny, and financial pressures, hospitals and health systems across the country face the need to partner and grow. Health systems of all sizes – from small community hospitals to mega-systems – must understand how to use their real estate assets to create the best possible financial outcomes during an M&A transaction.
A comprehensive real estate strategy can provide cost avoidance and revenue enhancement. Health systems need to effectively leverage real estate as an asset to avoid leaving money on the table. Healthcare real estate experts recommend a two-phased approach to drive ongoing success in an M&A transaction.
- Due diligence involves the following steps to ensure there are no post-closing surprises:
- Completing a holistic inventory of all real estate assets categorized into four basic facility types: owner-occupied, owned and leased to third parties, owned and vacant, and leased from third parties.
- Determining and conducting essential reviews for a successful M&A transaction, including facility condition, operational, financial, and compliance assessments.
- After the transaction has closed, healthcare executives can move into phase two: integration and optimization:
- Establishing a real estate portfolio optimization plan.
- Creating ongoing operations and savings efficiency strategies.
- Finding the right tools to manage your portfolio using data-driven insights, such as Realty Trust Group’s PinPoint platform.
This two-phased approach has proven successful for healthcare M&A transactions guided by Realty Trust Group. For example, when Mountain States Alliance merged with Wellmont Health to form Ballad Health, the system ultimately achieved annualized savings of $9 million through a series of practice relocations, space consolidations, and lease eliminations. Without a thorough real estate strategy, the system would have missed out on massive opportunities for cost optimization and been vulnerable to significant challenges.
Real estate is often viewed as “just another cost” in M&A transactions and is neglected as an asset when considering a health system’s full value. However, no matter the size of your health system or your position in an M&A transaction, developing a comprehensive strategy and implementation plan that treats real estate as a resource rather than a burden can help cut costs, optimize opportunities, manage risk, and create long-term success.
Realty Trust Group has decades of specialized experience partnering with healthcare leaders across the country to maximize real estate opportunities and achieve their goals during M&A transactions. To learn more about the tangible steps healthcare organizations can take to leverage real estate to bend the cost curve in the face of M&A activity, download Realty Trust Group’s white paper here.