To succeed in the mergers and acquisitions game, trusts must plan carefully, say Martin Jacobs and Steve Saunders

To succeed in the mergers and acquisitions game, trusts must plan carefully, say Martin Jacobs and Steve Saunders

While there has been no shortage of administrative reorganisations in the NHS over the last 20 years, there has been little in the way of merger and acquisition activity or disposals in a commercial sense.

However, with health reform placing an emphasis on a more business-like approach to purchasing as well as providing healthcare, this is now changing.

This year, Heart of England foundation trust combined with Good Hope Hospital trust. Acquisitions, for example South Staffordshire Healthcare foundation trust taking over Shropshire County primary care trust's mental health and learning disabilities unit, have also taken place in recent years.

Driving factors

Such mergers should be no cause for surprise. Competitive markets see consolidation as improving efficiency and a response to changed patterns of demand. If merger and acquisition activity is set to increase in England, what will be the main drivers and how much consolidation will take place?

A number of important dynamics affect the structure of the NHS. For trusts unable to achieve foundation status, a merger or acquisition by a more successful trust may be the only alternative to break-up or sale.

Successful foundation trusts are likely to start looking to acquire additional hospitals and/or specialist services to develop the services they offer. PCTs will be concentrating on purchasing health services and many will dispose of their provider arms.

These factors relate to merger and acquisition activity in the NHS, but there will also be private and third-sector players, as seen in the proposed sale of Ravenscourt Park Hospital in London to private sector interests and the disposal of Surrey PCT's nursing and therapy services to a specially created social enterprise, Central Surrey Health.

A combination of recent European Court judgements and policies introduced by the DoH makes it increasingly likely that more NHS services will have to be put out to tender. Mergers or disposals (transferring staff and assets to social enterprises) may gain greater competition and challenge from interested parties.

Planning for success

So how should trusts and their boards respond to this challenge? The changing landscape makes it imperative for each trust to have a strategic plan in place if they want to be in control of their own destiny.

Before considering any merger, acquisition or disposal process, a trust should do a strategic review of its offering and its market positioning. Considering adjacent health trusts or business units simply because they are failing or available is not in itself sufficient justification for mergers and acquisitions.

Mergers can be fraught with difficulty and often fail to achieve their projected benefits. Business literature suggests that more than 70 per cent of mergers fail as a result of poor planning or misaligned objectives.

The complexity of stakeholder interests often requires rigorous challenging to ensure objectives are clear. The optimum implementation strategy can then be devised. Risks can also be better identified in light of these objectives and then managed appropriately.

Mergers versus takeovers

While it is common to talk about 'merging' entities, what happens in the private sector is a takeover or acquisition of one entity by another. The public sector, and specifically Monitor's guidance to foundation trusts, tends to focus on 'mergers', suggesting a marriage of equals, but this has the potential to hinder the operation of change and achieving benefits from the merger.

A private sector acquisition is fundamentally concerned with financial value, established and fixed in terms of a sales price. The public sector is concerned with value for money, the combination of cost and service level. While more difficult to measure, it is important to provide a baseline for measuring successful integration.

Finally, in acquisitions of private companies, cultures, people and processes all play a part in a successful merger. The process is apt to cause disruption in any merging organisation, but this can be managed to an extent with clear planning and communication. This is no different in the public sector and the remedy is to act quickly in making the required changes.

For the boards of trusts and foundation trusts alike, the mergers and acquisitions genie is very much out of the bottle. The challenge now is how to position their organisations to meet the demands of stakeholders.

Martin Jacobs is a partner and Steve Saunders is a director at PricewaterhouseCoopers.