Growth Goals Through M&A

grwothGrowth in a healthcare business like urgent care or an ASC is integral to staying current in an industry that is prone to constant change.  The Ambulatory M&A Advisor discusses some of the ways that companies can achieve continuous growth through the method of mergers and acquisitions.

Alan Ayers, Vice President of Strategic Initiatives with Practice Velocity says that M&A is very important to consider when attempting to grow a business like an urgent care.

Ayers says that over the last 10-12 years urgent care has experienced solid, uninterrupted growth.

“Originally urgent care was driven by physician entrepreneurs—primarily emergency physicians—opening their own centers and growing organically, adding locations as cash flow permitted.  Some grew to 3 locations while others grew to 20 and eventually, almost every community had at least one dominant local UC operator,” Ayers says.

“Then, about five or six years ago, private equity saw an opportunity to profit from the concept of “multiple expansion” by consolidating disparate urgent care centers into regional or super-regional footprints.  The idea is that they could acquire centers for 4 to 5 times earnings and then eventually sell the entire franchise for a 12 to 16 times multiple, or greater.  To start, they acquired the strong local operating platforms the physician-entpreneurs had created, with the intention of building upon them by acquiring additional centers.  But acquisitions proved tough.  Successful operators demanded higher multiples and often times an acquisition target isn’t in the ideal location, the objective of “acquiring doctors” is undermined when acquired physicians quit (and sometimes open competing centers), and there are significant costs in retraining staff, renovating facilities, and replacing systems.  So some private equity-backed groups found it easier to grow by de novo (opening new locations on their own) as opposed to by acquisition.  De novo growth assures the “right” location as well as consistency in physical plant, staff training, systems and processes.”

Ayers explains that in today’s healthcare industry there is a large move towards accountable care, managed care, and population health management.  Hospital systems are viewed as the terminal owners of these urgent care centers.

“Acquiring a profitable urgent care, which can be immediately accretive to a hospital’s bottom line, enables a hospital realize the benefits of urgent care from Day 1 as opposed to waiting 1-2 years for volume to ramp up in a start-up.  Much M&A activity today is the domain of hospitals and health systems rather than private equity groups,” Ayers says.

William H. Wenmark, founder and CEO of NOW Care Medical Centers, currently a consultant for urgent care medicine says that even through the evolution of urgent care and its M&A lifespan, the goal of growth between the companies depends on the structure and the groups; who they are and what their agenda is.

“That is a minutia, but it is extremely important to understand the organizational missions when groups are getting together.  This is to ensure that there is some simpatico between the approaches that they are taking and the goals that they have for growth.

If you can navigate the mixed interests of different groups, I think you can very well develop a network.  What is important in geographic specific areas of the United States is a network or a system of the delivery process,” Wenmark says.

“The strategic development of each one of these centers also has to be taken into consideration.  Someone needs to know what they are doing to promote growth.  It’s not just about opening up another center.

You have to be strategic about it and consider where you are putting new centers for growth, what characteristics the particular set of zip codes bring, but also you want the ring of service in one center to integrate within the rings of your other centers.”

Wenmark says the success of growth through M&A comes down to who is the driving force.  That can be an individual or an organization with some kind of goal.  What is that goal?  These are things that owners interested in M&A should ask themselves.

“All of the cards have got to be on the table when these groups are sitting down and talking about it.  It is a very complex process to go through and you have really got to make sure that you are crossing your Ts and dotting the Is,” he says.

Creating Goals through M&A

Norman Winland, an urgent care consultant with 24 years of experience in the industry, says the primary goal is to gain market share and increase revenues quickly as opposed to slower de novo growth.  Acquiring clinics in a neighboring and complimentary market serves to expand the footprint of influence and name recognition in the community is key, he says.

“Another goal is to gain expertise that the acquired company may have.  For example, if you are an organization that doesn’t provide occupational medicine but the acquired company does, then the synergies and expertise obtained through the acquisition reach much further than simple market share.  The skills and talents of the personnel as well as the systems and processes obtained as a result of the acquisition are often times just as valuable as the additional locations.” Winland says.

A good example of added expertise through M&A is revenue cycle management.

“If the target company being acquired has an efficient in-house revenue cycle team and the buying company outsources it, then the acquisition provides a good foundation for bringing revenue cycle processes in-house after the transaction.  Making the acquisition gives the buyer an experienced team in which to build upon instead of starting from scratch.’ Winland says.

Ayers says that urgent care is a retail delivery channel for medical care so the acquisitions seen are typically intended to increase the reach of the retail footprint by adding additional locations.

“It’s rare that you would see an urgent care company buy an upstream or downstream service provider or an ancillary business.  So to the extent that consumers expect consistency in the patient experience, systems, processes, and culture, the goals around an acquisition of urgent care centers should focus on integration. A multi-unit operator can’t be successful with rogue centers that continue to “do things their own way.”” Ayers says.

Ayers says that ideally, the acquirer or surviving entity should look at who and what works well in the acquired business. This is another way to achieve growth and

“Often you can pick up good people from an acquisition who can help the entire organization move forward.  Rather than completely replace the culture, processes or systems of the acquired entity, the acquirer should look for best practices that can be implemented elsewhere.  The acquirer should identify value beyond the people and physical assets,” he says.

“A risk with any acquisition is that the acquired personnel quit, significant additional investment is required to upgrade or convert facilities, systems and processes to the “parent” entity, and that service disruptions will drive patients and customers elsewhere.  In some cases, a re-building period of 2-3 years can occur after a poorly handled integration.  In this case, the value of the acquisition is questionable as opposed to growing by de novo…starting with the parent’s operating model from day 1.”

Reasons to Grow

Ayers says growth is extremely important.  Urgent care is affected by a variety of external factors including competition from emerging operating models like telemedicine and employer on-site clinics, by insurance companies and the government who set reimbursement rates, and by a myriad of regulations affecting labor and all aspects of the practice.

“An urgent care who fails to stay attuned and adapt to these forces, it could find it’s legacy operating model irrelevant and unsustainable,” Ayers says.

“One of the biggest changes now taking place is the shift towards integrated care, in which hospitals, provider groups and insurance companies join together to manage the total health care expenditures of a population.  Health insurance is shifting towards narrow networks and if an independent urgent care operator gets shut out, it will be increasingly difficult to attract and retain patients.”

If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or

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