A budget will help you to monitor the financial health of your practice – but that’s just the beginning. Stephen Allan, Credit Executive at Medfin Finance, explains how a budget can also help you to run a more productive and profitable practice.
19 October 2016
An ageing population, increasing consumer demands and a changing regulatory environment will continue to drive healthcare providers to sharpen their focus on value, cost-effectiveness and efficiency.
“For many, that means increasing their scale in order to realise growth opportunities and improve the efficiency of their service delivery and infrastructure,” says Head of NAB Health Corporate John McCarthy. “For instance, scale provides more capacity to invest in people and to leverage significant infrastructure investments such as technology. It can also increase purchasing power.”
As a result, there is increasing merger and acquisition (M&A) activity throughout the industry.
“We’ve seen hospitals expanding through development programs, but most of the activity is taking place within the aged care sector,” says McCarthy.
Consolidation in aged care
The aged care sector in Australia remains highly fragmented. The 5 largest players control approximately 14 percent of market share by number of beds, though they are all aspiring to lift this.
“About 20,000 beds have changed hands over the last 24 months at strong multiples – a level of activity we haven’t seen in this sector for some time,” says McCarthy. “New capital from private equity and initial public offerings will continue to support activity in the coming financial year.”
In 2014, the government’s Living Longer Living Better package of aged care reforms introduced significant changes, including greater choice for residents to pay for aged care accommodation with the option of paying a fully refundable lump sum payment, a periodic payment, or combination of both.
“This means providers can no longer depend on receiving a lump sum payment with each new resident,” says McCarthy. “At the moment, most people are still choosing to pay the deposit but the potential need for greater liquidity has introduced new levels of uncertainty for single facility operators, family operators and small community groups. The bigger you are, the more easily you can absorb the risks associated with liquidity throughout your portfolio.”
While some organisations will achieve scale through organic growth, more will consolidate.
Operators of any size can thrive in the current environment as long as their business is being run efficiently and they have an appropriate strategy in place. For anyone considering either an acquisition or exiting the business, Richardson believes that preparation is key to a successful outcome.
Preparing to sell
1. Anticipate a potential buyer’s due diligence by doing your own internal due diligence assessment and putting your house in order as best you can.
2. Research potential buyers so you understand how your organisation can add value to theirs. This is essential for attracting interest from relevant parties and supporting effective negotiations.
3. Where appropriate, talk to a professional adviser who can help you attract interest and the highest possible price.
Preparing for a merger
1. Be clear about your own strategy and how the target organisation will add value to your business.
2. Complete thorough due diligence on your potential merger partner or acquisition target to confirm valuation, support the case for business synergy, establish the most effective integration plan and quantify key risks and mitigating factors.
3. Ensure that you and your potential partner are culturally aligned and that you can retain key employees.
4. Look for added value in the composition of the board and/or a good mix of executives.
5. Ensure there is very strong governance around the execution of your integration plan and post-merger strategy. It is critical to monitor progress consistently and to make appropriate adjustments along the way. Many mergers fail to realise benefits due to poor cultural alignment and post-merger execution.
NAB Health is well connected in the healthcare sector and can help support anyone considering strategic options across the spectrum of organic investment to mergers and acquisitions. For more information contact John McCarthy, Head of Health Corporate on 0467 710 581.