5 Key components for effective physician practice mergers

Thinking of merging? Don't overlook these components of an effective one.

There are numerous reasons you may want to merge your medical practice with another. Perhaps you want to expand your practice to new geographic markets or maybe it is a financial necessity, or you simply believe that the practically instantaneous growth produced by a merger or acquisition will help your medical practice achieve new heights and fulfill your goals. Whatever your motivation, you cannot simply pick any random practice out of a hat and try to make it work—you have to find the right match. Mergers or acquisitions are no easy task, and the larger your medical practice the more complex it will be.

Mergers and acquisitions life cycle

The mergers and acquisitions (M&A) life cycle is broken down into three phases: Strategy, Execution, and Integration.For the purposes of this article, I am only going to address the strategy phase.

Strategy

Strategic planning helps protect you from M&A failures. Just because you want to buy a medical practice doesn’t mean you should buy that practice. There are several questions you should ask yourself when researching target physician practices.

  • Why do you want to acquire, or merge with, another practice?
  • What is your business objective?
  • Do the target practice’s clinical services fit with your objectives?
  • What value will the deal bring you?
  • What is the value of the target practice?
  • Does the culture of the other medical practice fit with yours?

These types of questions can help you narrow your choices as you screen the medical practice you are interested in, determine target practice valuations, structure deals, and analyze how your business decisions will give you an advantage in the current market.

Importance of synergy

Synergy is a combined action or operation. Many medical practices decide to merge with or acquire another practice based on potential synergies that can come from combining similar clinical services and technologies. The following are some benefits that synergy can bring when physician practices merge:

  • Combine workforces—Identify and eliminate redundancies and restructure workflows to increase efficiency and to accommodate increased business volume.
  • Combine technologies—Combining similar technologies can help a practice to achieve strategic advantages in your market.
  • Reduce costs—Consolidation can improve your purchasing power and decrease costs as you negotiate better terms with vendors based on the need for more materials because of increased output.
  • Market expansion—There is potential that combining medical practices will create an advantage in a particular market, or enter into a market that was not previously available to you.

Here are five key components required for a strong and effective merger.

1) Communication

As in most aspects of business, communication is a vital key to ensuring your merger or acquisition goes smoothly and is the right move for both medical practices. You need to have completely open and direct lines of communication with the key players from the practice with which you want to merge. This is one situation where you absolutely cannot afford to have lines get crossed or have a misunderstanding about each other’s expectations. Be clear and forthright about what you want and expect, and build your new relationship on a foundation of complete honesty.

2) Win-Win

The merger or acquisition needs to be a win-win for both medical practices. For your merger to be effective, both sides of the transaction need to be improving their situation in some way. One-sided M&As will leave at least one of the critical parties unhappy with the outcome, which does not bode well for your future together. Think of your merger as a relationship—both sides need to bring something to the table that makes the other party better.

3) Shared vision/new identity

Early in the process you need to establish with your counterparts in the “target” medical practice what your soon-to-be combined practice’s new identity will be. You might not be able to practically maintain the identities of both practices. Likewise, it may be practically difficult to completely integrate one group’s identity into the other. What will your vision be for your new medical practice? If you and your counterparts do not agree on a vision for the practice’s future, then the merger/acquisition may not be successful post-closing. Your vision and new identity should be very clearly defined and planned before moving forward.

4) Well-planned

Speaking of planning, this is another vital component of any merger or acquisition. You cannot just leap into the merger and expect things to work themselves out. Quite frankly, you need to clearly plan out many of the critical details of the transition. Whether you are the buyer, seller, or another major player in the transaction, an experienced transaction consultant can help you plan and execute every step of your transaction.

5) Integration

You may need to establish an integration team entirely dedicated to executing and implementing the merger. There will be many major changes for the employees from both practices, and you need a strong and well-executed integration plan to ensure the transition goes smoothly. There is a great deal to think about with regard to how you will integrate your new identity and culture and you need managers who can focus on this while others focus on continuing the normal focus of your business.Do not execute any closing documents until you have first prepared an integration plan.

When properly planned and executed, a strong merger and acquisition can take the involved companies to heights they never dreamed of. But the M&A process doesn’t happen overnight or even in a couple of weeks. It is a long, complex, and detailed process that requires patience, diplomacy, compassion, and compromise. The ideas and best practices outlined above can help you to remain focused, pay attention to detail, and get the deal done right.