Mark S. Martin, vice president of development at Adventist Health System, and Stephan Peron, managing director of VMG Health, a healthcare valuation and transaction advisory firm, discussed Adventist Health’s experience conducting an effective joint venture agreement during a Nov. 14 presentation at the Becker’s Hospital Review 6th Annual CEO + CFO Roundtable, which took place from Nov. 13-15 in Chicago.
During the presentation, Mr. Martin and Mr. Peron outlined the four key phases of a transaction and explained the details of each phase through a case study analyzing Adventist Health’s joint venture with Alternate Solutions HomeCare.
Here are the four phases of a transaction.
1. Strategy. Mr. Martin said Adventist Health officials considered four main strategies regarding their home health business. The health system could continue down its current path while increasing its investment in its existing home health infrastructure and deploy additional resources to gain relevance; sell its service line to a third-party organization; enter into a management services agreement with a third party; or create a joint venture with a third-party entity. The health system eventually settled on the fourth option of entering into a joint venture agreement with an undetermined third party.
To ensure a successful transaction, organizations should strive to “identify key stakeholders [early on],” Mr. Peron said. “Take the most skeptical people and have them engaged from the beginning. [That way] they’ll become proponents of the deal much faster.” He also added having legal counsel on board with the proposed arrangement will prevent pushback as the deal moves closer to being finalized.
2. Target screening. This phase involves examining how each target would be conducive to an organization’s overall mergers and acquisitions strategy, Mr. Peron said. During this phase, organizations should examine potential challenges and hazards that may arise from a potential partnership. In Adventist Health’s case, officials determined a future partner’s flexibility was imperative. Ideal potential targets would not try to negotiate any other factors of the potential alliance and simply manage the health system’s home care business as they saw fit, according to Mr. Martin.
3. Due diligence. After finalizing their criteria for a potential partnership, Adventist Health officials began examining prospective candidates. Officials focused on finding a partner that would be be a cultural fit with Adventist Health — an organization with a similar mission that they carried out the same as or better than the health system did, Mr. Martin said. Executives also searched for organizations that would prioritize regulatory compliance, patient safety and employee retention by offering current Adventist Health employees comparable benefits once the new management took the reins.
4. Execution. Officials eventually opted to form a joint venture with Alternate Solutions. Under the agreement, Adventist Health ensured Alternate Solutions maintained a stake in the business, while the home health company agreed to provide daily management and operational oversight of the health system’s home health arm.
Mr. Martin said healthcare organizations that are wary of entering into any M&A arrangement should consider pitching the partnership as a “pilot program … that way [officials] can monitor performance and continue to communicate” to ensure the affiliation represents a good fit for both organizations.
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