Operational Integration

Successful integration is key in order to maintain value in healthcare investments, according to experts who spoke on a panel at the 20th Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on May 8th and 9th. Because healthcare service businesses are driven by people, a clear, communicated integration plan is essential to establishing trust amongst providers and making providers feel supported post-transaction.

Experts included Andrew Clark, Managing Partner at Leavitt Equity Partners; Dan Iantomo, Managing Partner and Chief Information Officer at Clear Harbor Advisors; Erik Miller, President and General Manager at MedHQ; Ann Sariego, Market President at SCA Health; and Emily Hak, Managing Director of Private Capital Markets at Insperity.

Here are four key points from their discussion:

  1. Integration begins with diligence. In order to have a successful integration of a healthcare business following a transaction’s closing, an investor must understand its target and develop a unique plan specific to that target’s needs and expectations. Investors should utilize the diligence process to gain a better understanding of a practice’s historic compliance policies, physician compensation, billing and coding practices, and other pre-closing operations. Do not just leave diligence to the attorneys, who may not be part of your integration planning. Conducting thorough due diligence on a healthcare business and understanding its historical operations prior to a closing will streamline the integration process post-closing.
  2. Ensure post-closing expectations are aligned. During the deal process, it is imperative to align the deal teams with the buyer’s integration teams to ensure a seller’s providers and employees are hearing consistent expectations for operations post-closing. It can create an immediate lack of trust among providers and employees if the deal teams they were working with pre-closing provide them unrealistic or problematic information for post-closing integration and operations.
  3. Planning and flexibility are equally important. Investors should consider the successes and failures of post-closing integration from prior acquisitions in order to develop an integration plan in subsequent deals. While the plan should implement repeatable processes and standardization, where possible, the plan must also be flexible enough to allow for the many unique circumstances of each target. Integration teams should ensure that they understand and follow the developed integration plans, but should also be able to pivot or change course as necessary or as favorable for post-closing operations.
  4. Establish a Regular Cadence of Communication. Healthcare acquisitions often result in major changes post-closing for the target company, and with change comes a great deal of uncertainty. To minimize uncertainty and increase trust, integration teams should focus on frequent clear communications. Integration teams should consider establishing physician advisory boards, town hall meetings, or other methods of encouraging frequent communication in order to develop regular communication with providers, employees or other individuals involved in the business. Beginning these conversations during deal negotiations may assist in building trust by introducing the wider team.

The HCPE Conference continues to deliver as one of the best networking conferences of its kind for those investing in healthcare companies or healthcare companies receiving capital from private equity and finance. The deep-dive, extensive discussions into various sectors (as well as the industry and deal-making generally) generated thought-provoking discussions across the board. Thanks to everyone who attended the 20th HCPE Conference — McGuireWoods looks forward to continuing the dialogue.