Challenges In Making Mergers & Acquisitions Work

Transcription

1 Challenges In Making Mergers & Acquisitions Work #OMInnovation The 2018 OPEN MINDS Strategy & Innovation Institute June 6, :00 pm 3:15 pm Ken Carr, Senior Associate, OPEN MINDS Lincoln Square, Gettysburg, Pennsylvania Phone: info@openminds.com All Rights Reserved.

2 Agenda I. Challenges & Best Practices Of The Merger & Acquisition Process II. III. Merger & Acquisition Case Studies: Danita Johnson Hughes, Ph.D., President & CEO, Edgewater Health Nicholas C. Riehl, J.D., MBA, VP of Corporate Development & General Counsel, ncgcare David Guth, Chief Executive Officer, Centerstone Questions & Discussion All Rights Reserved.

3 Challenges & Best Practices Of The Merger & Acquisition Process

4 Mergers & Acquisitions Are A Growing Strategy Mergers and acquisitions are a growing strategy in health care to create scale resulting in greater market impact and profitability The volume of deals is growing 115 hospital and health system deals announced in 2017 a 13% increase over 2016 Aggregated deal volume over $63 in health systems deals in 2017 The competitive market is changing larger and stronger organizations 16 of the deals in 2017 involved organizations with over $500 million The average margin of acquiring organizations in the behavioral health market was 12.8% Investors see the value in behavioral health services 62% of behavioral health merger and acquisition activity was with private equity Addiction treatment is considered a fragmented market with $42 billion in revenue by All Rights Reserved.

5 Why Pursue M&A As A Strategy? Economies of Scale/Reduced Costs Per Unit Expansion of Services Expansion of Geographic Reach Opportunity to Rebrand Enhanced Collaboration / Population Health Opportunities Increased Internal Talent Increased Opportunities for Innovation Better Infrastructure & Technology Enhanced Opportunities for Payer Contracting & VBR All Rights Reserved.

6 Risks Of The Merger & Acquisition Process Merger Risks Negotiations ultimately fail Merged organizations never achieve integration due to incompatibilities Cost savings ( merger synergies ) never materialize Leadership tensions impact operations and outcomes Community constituents have a negative reaction Reasons Why Mergers Fail Lack of knowledge about merger strategy, process & integration plans Failure to find the right partner Lack of time and funding allocated for due diligence and post-merger integration activities Viewing mergers as solutions to financial or leadership issues instead of growth and positioning strategy All Rights Reserved.

7 Challenges Post Merger Bigger & More Complex Missing Needed Talent Cultures Not Aligned Adjusting To Larger Scale Issues Missed In Due Diligence Synergies Not Achieved All Rights Reserved.

8 The OPEN MINDS 10 Guiding Principles To Successful Mergers 1. Planning comes first Start with a plan to create strategic advantage and don t waste resources due to lack of purpose and focus. 2. Be systematic and have a process Lay out the process and decision criteria in advance so you aren t distracted as issues arise. 3. Use experienced talent Most organizations need additional knowledge and expertise to make sound decisions market intelligence, legal, finance, political ramification 4. Be deliberate in partner selection Have a planned, deliberate (not necessarily slow) process for finding potential partners 5. Be sure the priorities to all parties Make sure goals of all partners line up early in the process 6. Expect to give and get full disclosure Due diligence involves investigation and assessment and requires complete openness by all partners. 7. Allow decision making to evolve Strategic plans need to be flexible as realities change be willing to do things differently and better 8. Build in time for a competitive process Having multiple partner choices enhances to the quality of the final partner selection decision 9. Design an implementation plan Ensure that there is an implementation plan that includes tactics, assigned responsibilities, and a budget 10. Prepare for stakeholder questions Develop a communication plan to address questions and concerns from consumers, customers, referral sources, payers, regulators All Rights Reserved.

9 Edgewater Health Danita Johnson Hughes, Ph.D., President & CEO, Edgewater Health

10 Our Journey to Success

11 Who we are: 44 years in business Comprehensive behavioral health services provider Budget: $15M Employees: locations

12 Strategic Considerations Viability Business Growth and Development Mission Fidelity Patient Population Health Community Health and Wellbeing

13 WHERE DO WE GO FROM HERE? MERGE, BUILD OR BUY

14 DECISION: Buy Internal Medicine Practice 25 years in business For-profit practice 14 Employees Budget: $2M Two Locations Gary, IN Griffith, IN WHOLE PERSON HEALTH

15 Primary Care Services Gary and Griffith Offices Our services include the following: Routine Adult Well Care Internal Medicine Women s Health Sick Visits Physical Exams Disease Screening Chronic Disease Management Patient Education ab Screening Cardiac Evaluation Diabetes Screening and Management

16 Challenges Cultural issues Three different EMRs Different business processes Billing different codes Workforce and training issues Credentialing Malpractice insurance

17 Lessons Learned: Operations Biggest challenge: IT Primary care coding and billing Communication between service Primary care clinical quality measures Physician Pay: Use of RVUs Silos not easy to overcome

18 Opportunities Provided Creation of a health home Continued organization growth Improved quality of care Better coordination of care Marketing Award

19 Our Future Additional acquisitions opportunities FQHC designation positioning Additional expertise OBGYN Pediatrics Dental Certified Behavioral Center positioning Stabilizing finances New comprehensive EMR

20 SUCCESS Next Exit Road To Success

21 Questions? More Information? Edgewater Health Danita Johnson Hughes, PhD President/CEO 1100 W. 6 th Avenue Gary, IN edgewaterhealth.org

22 ncgcare Nicholas C. Riehl, J.D., MBA, VP of Corporate Development and General Counsel, ncgcare

23 Mergers & Acquisitions- Our Experience Nick Riehl, VP Corp Development

24 About Me In 30 seconds First job post grad-school was as CFO/COO of $5mm mental health provider in PA Taught a class on M&A Company targeted by ncgcare for acquisition 2 years ago I went to ncgcare, ncgcare runs my former company under management agreement Now I oversee M&A activities at the company

25 About ncgcare For-profit, multi state provider Mission, values driven 3 years of acquisitions experience Fast growth, strong team Currently about $90mm in revenue 1900 employees

26 ncgcare History Founded 1993 as Northern Virginia Counseling Group group counseling practice Early programming focused on self-pay individuals Focus on dual diagnosis treatment

27 About Us Visionary owner Saw community-based care as the future of behavioral health, began opening offices across the state Changed name to National Counseling Group with an eye towards bigger things in 2005 Our CCO is employee #2. Our COO is employee #5 Prior to acquisitions, created Embrace (Treatment Foster Care) and Envision Counseling (Private pay)

28 So How Did We Become An Acquirer? Grew to almost $50mm by 2014 Took a major rate cut in a primary program Decided being solely dependent on the Commonwealth of Virginia was a risky proposition With diversification in mind, we engaged an investment banking firm to craft our strategy

29 Our Acquisition Strategy Engaged investment bank to find firms: Between $5-$20mm in revenue Eastern seaboard only at first High quality providers, preferably utilizing mainly evidence based practices MH, Substance Abuse, Intellectual disability Outpatient, community based, low intensity residential services For profit preferred but non-profits are welcome too!

30 Our M&A Experience 5 deals closed Several LOIs outstanding Interviewing new potential partners each month. Acquisition capital: Series A- Bank funded. Series B- Mezzanine capital, line of credit Compound annual growth rate =26%

31 Our Expectations Upside benefits Quality Access (people, risk, contracts) Diversification (geography & services) Technology / Data

32 Turning Point Family Care Raleigh, NC MH Provider $6,000,000 Revenue in two locations 100 employees OP, Intensive In-Home, Peer, Day TX

33 Independent Adult Day Services Day Support for individuals with Intellectual Disabilities in Richmond, VA $300,000 revenue 7 employees

34 Appalachian Community Services Comprehensive provider of behavioral health services located in far-western North Carolina 200+ employees $14,000,000 revenue Services include OP, Intensive In-Home, Facility and Mobile Crisis, Intellectual Disability Group Home and Community Services

35 Starlight Behavioral Health Intellectual Disability Provider in Huntington, WV 180 employees $6,000,000 revenue Services include individual support, behavior intensive group home, forensic group home, behavior support, and service coordination

36 Grace Harbour Behavioral health provider headquartered in Peachtree City, GA, with offices around northern half of state 55 employees $4,000,000 revenue Services include OP, MST, FFT

37 Challenges

38 Challenges We didn t expect it to be easy Stresses at all levels of the organization Because BH is so different state to state, its like running 7 separate companies

39 Challenges The Organization What is the right organizational structure to maximize chance of success? Are the right people in place? Are there right people on wrong seat on the bus? There were changes, but so far there has been a role for everyone Need people who are excited for change and want to learn new things every day

40 Challenges - People People assume they re getting laid off (or getting a raise) it takes time to develop trust For mission driven companies, it takes time to convince them that you re mission driven too How to use owners who want to remain involved How much face-to-face attention is needed?

41 Challenges - Technology Biggest challenge has been internet connection it takes consistent service for videoconferencing HRIS systems are difficult (pay frequencies, practices, etc.) Accounting, expense management tends to be the easiest

42 Challenges - Technology ehrs Everything would be perfect if we were on the same ehr It takes a lot of time and resources to change systems There is no way to do it on day 1, so your integration planning is really an intermediate plan

43 Solutions

44 Solutions? Consistent communication (video messages) Using the org structure to communicate CareCon Domo - dashboarding

45 Have We Succeeded? Mostly yes Back to our expectations Quality Access Diversification Technology / Data

46 Centerstone David C. Guth, Jr., Chief Executive Officer, Centerstone

47 OPEN MINDS JUNE 6 th, 2018

48 CENTERSTONE BRAND PROMISES Delivering care that changes people s lives Brand Promises Access Individuals access treatment quickly and easily. Personalized Care Treatment is tailored to individual needs, goals and life. Treat to Target The success of treatment is measured according to the individual goals that clients set with their treatment team. Innovation and Value Individuals and payers know Centerstone for cutting edge and high value clinical care. 48

49 CENTERSTONE AT A GLANCE (Inclusive of the Uspiritus merger slated to take effect 7/1/18) Noble Purpose: Delivering care that changes peoples lives A not-for-profit healthcare system with annual revenues of $380 million 200 facilities in a basic five state footprint (IN, IL, KY, TN, FL) 22 service lines spanning mental health, substance use, intellectual and developmental disabilities, and integrated primary care 5,200 staff serving 180,000 people each year Result of the affiliation and or merger of 20 formerly independent non-for-profit organizations 49

50 BECOMING THE IDEAL COMPETITOR What does that look like and Why: In scale? In service lines? In capabilities? In value to consumers, referral sources, payers, staff? 50

51 Market Level Opportunities: The emerging payer, partnership, and policy marketplace, coupled with the emerging evidenced base models, technologies, pathways, and practices of care. Opportunity Ceiling: The limits of opportunity regardless of capabilities created by visibility, reputation, trust, and leverage as perceived by external stakeholders. Capabilities: Demonstrated competencies 51

52 THE FIVE WHYS Why Scale? Why Merger? Why Us? Why Them? Why Us? (again!) 52

53 Now One Year Three Years Five Years $WW $XX $YY $ZZ Growth Tactic 1 year Certainty 3 year Certainty 5 year Certainty Organic Growth same store new market or service Acquire non profit for profit Acquired non-profit for profit ACME, INC. GROWTH PLAN Affiliation with smaller scale similar scale (+/- 40%) larger scale Joint Venture non-profit for profit

54 THE PROCESS Dating - NDA Going Steady - Letter of Interest Engaged - Letter of Intent Marriage - Closing The Real Work 54

55 Affiliation Targets Elevates Opportunity Ceiling Expands Capabilities Strengthens Capabilities Interested 55

56 MUTUAL ATTRACTION Interested Interesting 56

57 MAKING IT WORK Culture Humility End versus How Accountability Grieving 57

58 Questions & Discussion

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