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Post-Merger Financial Management Essay

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Updated: Jul 29th, 2020

Today, organizations tend to merge, as it is one of the effective tools to encourage financial growth and development of the company to ensure its competitive edge. In this paper, the concepts of a merger will be analyzed in the context of the healthcare industry. Defining financial drivers triggering the merger, assessing financial performance during the post-merger stage, and underlining the significance of various factors affecting the financial planning process are the critical goals of this essay. In the end, it will be essential to forecast the financial stability of the healthcare industry within the next five years.

Financial Drivers Causing Organizations to Merge

To establish grounds for discussion, it is vital to understand the potential triggers of the merger. As it was indicated earlier, mergers and takeovers are often viewed as growth strategies, since disregarding challenges, they could be considered as one of the easiest ways to maximize profits (Cutler & Morton, 2013). This matter is directly related to the fact that hospitals with well-developed value propositions tend to have higher market shares (Cutler & Morton, 2013).

Subsequently, these factors increase the retention of patients while generating profits from high admission rates. Thus, another aspect that may trigger a merger is the unstable economic performance of the company. Today, due to the constant changes in legislation, cyclic nature of the economy, and rapidly intensifying rivalry, it is reasonable for the organizations to merge to avoid bankruptcy and ensure their survival (Cutler & Morton, 2013).

Apart from the ability of the merger to maximize profits by enhancing the competitive edge, it could be discovered as a financial instrument to reduce production costs and optimize the overall process. Nowadays, the functioning of the healthcare industry is highly linked to the advancement of the technological sector, and this fact makes innovation and development of the critical attributes of a successful healthcare organization. In this case, the merger allows companies to share risks and costs by coordinating care, developing collaborations with medical specialists, and investing more resources in R&D and other mergers (Cutler & Morton, 2013).

Overall, as a result of consolidation, hospitals can develop a unique value proposition that enhances the quality of provided services while ensuring their positions in the competitive healthcare market, and these factors have a direct impact on its financial stability.

Evaluation of Financial Performance During Post-Merger Stage

When assessing the outcomes of the merger of two organizations and their effect on financial performance, financial analysts tend to rely on various indicators. In this case, a diverse range of financial ratios such as ROI and ROA can be utilized to evaluate the overall performance of the company, but taking advantage of the EBITDA margin is more rational. When calculating the value of this ratio, taxes, costs related to the acquisition, and interest rates are not included (Pignataro, 2015).

After proceeding the subtraction of these states of expenditure, the analyst will be able to determine the exact amount of profit generated during the post-merger phase (Pignataro, 2015). In this case, a positive value will imply an advantageous impact of the takeover on financial performance. At the same time, it still has to be compared with the expected outcomes and industrial benchmarks. Along with that, the company can measure Actual Returns (AR) to ensure the effectiveness of consolidation.

Another matter pertains to the impact of “an unanticipated event” on the value of the company in the stock market (Wang & Moini, 2015, p. 2). It is critical to consider since it determines the attractiveness of the enterprise to investors after restructuring. An upward shift in the stock value will imply that the merger has a positive impact on organizational performance. Lastly, some researchers believe that speed of consolidation is vehemently connected to the ability of the acquisition to cultivate favorable financial outcomes, as it shows the capability of the organization to adapt to changes and start working as a complex mechanism (Wang & Moini, 2015). A higher pace will be regarded as more beneficial than a slower one, and a financial analyst will take into account these characteristics during the assessment process.

Key Factors Driving Financial Planning Process

In turn, it is vital to consider an extended range of factors that have a substantial impact on the financial planning process during the post-merger phase. In the first place, the ability to successfully integrate and share a vision is important, as these matters will contribute to the effective development of the sufficient action plan and have a positive impact on the allocation of financial resources.

Along with that, developing and implementing the values of the mission statement will also have a similar effect on the financial planning process. At the same time, the capability to integrate and design an entirely new corporate culture is highly related to the development of a new brand image and identity (Ovseiko, Melham, Fowler, & Buchan, 2015). The speed and efficiency of these processes will also affect financial planning during the post-merger stage, as additional HR and restructuring activities may need to be introduced.

Thus, another aspect to consider is the training of the employees, as the merged organizations will have an entirely different pool of employees. In this instance, their levels of skills and competences have to be adjusted, as, otherwise, the company will not be able to meet its financial obligations and overall goals. The necessity and the number of employees have a direct impact on the financial planning process since a substantial number of financial resources have to be invested in these procedures. Lastly, one cannot underestimate the paramount importance of budgeting since it is highly dependent on the need and significance of the procedures mentioned above. At the same time, new auditing and evaluation entities may have to be established to control and assess the financial flow.

Pivotal Role of Financial Planning Process

Based on the analysis conducted above, it could be said that an extended variety of factors has a critical impact on the financial planning process, and their plethora underlines that this procedure has to be considered of paramount importance. As it was mentioned earlier, effective financial planning has a direct impact on the ability of HRM and management of the company to deliver mission and brand image, as a substantial amount of financial resources is needed to be invested in internal and external communication. Only with the help of financial planning, the company can restructure its processes, develop a new organizational culture, and cultivate change effectively (Ovseiko et al., 2015).

Nonetheless, the ability to plan effectively has a direct impact on the quality of the provided services since the efficiency of these activities is vehemently linked to training. In this case, investing the appropriate amount of financial resources in various simulators and educational sessions will have a dramatic impact on the overall healthcare, and medical personnel will be educated about safety. It will minimize the number of medical errors. Simultaneously, effective financial planning affects the ability of the organization to purchase new equipment and medications, and it also influences the quality of healthcare offered.

Financial Stability of the Healthcare Industry within Five Years

Thus, the assessment of a merger can be discovered as a foundation for forecasting the financial stability of the healthcare industry within the next five years. In the first place, it is crucial to note that the healthcare market stopped its fast growth due to high entry barriers such as the need for substantial financial investment and intense competition. At the same time, another trend associated with the industry is a decreasing number of rival firms (Cutler & Morton, 2013). These changes tend to incur, as the companies take advantage of consolidation initiatives since the level of demand continues to experience a downward shift (Cutler & Morton, 2013).

Consequently, it results in a lower number of competing enterprises, but they have larger market shares, higher recognition, and positive images. It remains evident that these factors are the main reasons for the intense competition in this segment.

A combination of the factors indicated above clearly shows that the healthcare industry will remain relatively stable within five years. It can be assumed that the number of mergers will continue to increase due to their financial benefits. It creates a favorable economic environment for the companies that consider acquisitions as their principal growth strategies. Nonetheless, any changes in reforms and actions of insurance companies may slightly increase the influence of this trend, but the economic conditions in this segment will remain stable (Cutler & Morton, 2013). To survive in the market, the company will need to establish an effective network with different marker players and consider taking advantage of horizontal or vertical integration to boost its competitive edge and flexibility.

References

Cutler, D., & Morton, F. (2013). Hospitals, market share, and consolidation. JAMA, 310(18), 1964-1970. Web.

Ovseiko, P., Melham, K., Fowler, J., & Buchan, A. (2015). Organizational culture and post-merger integration in an academic health center: A mixed methods study. BMC Health Services Research, 15(1), 25-35. Web.

Pignataro, P. (2015). Mergers, acquisitions, diversities, and other restructurings. Hoboken, NJ: John Wiley & Sons. Web.

Wang, D., & Moini, H. (2015). Performance assessment of mergers and acquisitions: Evidence from Denmark. E-Learner Berlin, 1(1), 1-15. Web.

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