Hospital And Health System M&A Series: Developing A Hospital Transaction Strategy And Process

This newsletter is part of a series developed by McDermott Will & Emery, a global law firm with internationally recognized corporate and health practices, and Juniper Advisory LLC, an independent investment banking firm dedicated to providing its hospital industry clients with M&A and other strategic financial advice. Rex Burgdorfer and Jordan Shields, both vice presidents at Juniper Advisory, co-authored this article. Click here to read the other newsletters in this series.

Hospital transactions involve complex processes and carry significant ramifications for an institution and the communities it serves. This article outlines key steps that a hospital board and management team should take in order to develop a hospital transaction strategy. Developing objectives early and conducting an options assessment will lead to a well-designed process that will facilitate an effective transaction.

Pursuing a transaction is among the most significant actions that a hospital board and management team can undertake in the life of an institution. It also is the riskiest. Economic and non-economic stakes are high, including preserving the hospital's mission and charitable objectives, safeguarding access to care, ensuring quality and protecting employees. A well-run merger process maximizes board objectives and avoids critical missteps.

This article identifies the key components of an effective transaction process. Successful organizations start with their mission and clearly articulated medium- and long-term objectives. They then complete a comprehensive options assessment, identifying the full range of strategic financial alternatives. By pursuing an organized transaction process, organizations can devote attention to pursuing alternatives best suited to fulfill their mission and meet their objectives.

Developing Objectives The first step for a non-profit hospital board considering any hospital transaction is to clearly articulate its charitable objectives and goals for a potential transaction. Not only does this process help focus the board, it can be critical for approval of the transaction. In many states, hospital transactions are subject to state attorney general or other regulatory approval, and the hospital will be required to demonstrate that at every step of the process the organization's charitable objectives and goals guided decision-making.

To help articulate specific charitable objectives, management, often with the help of an outside advisor, can assess the needs of...