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Healthcare post merger analysis - Essay Example

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Healthcare post merger analysis

Consolidation in this industry is essential for its sustainable growth in the long run and to meet the emerging challenges in the industry in terms of huge investment and infrastructural facilities needed to cope up with the increased demand in the society for healthcare services. Evaluation of financial performance Study by Healy, Palepu & Ruback (1990) found that “The results indicate that merged firms have significant improvements in asset productivity relative to their industries after the merger, leading to higher post-merger operating cash flow returns.” The criteria for evaluating financial performance of the organizations post-merger are multifarious depending upon the type of organization and its objectives. However, in a typical company running on profit basis, return on investment post merger is an important criterion for evaluation of financial performance from the shareholders’ point of view. There are mergers also taking place between for profit and not for profit organizations. Financial and operating ratios as performance measures are adopted by the organizations for industry comparison as well as comparison with the historical performance. Of which, the following are the important ratios used for measuring performance in term of profitability. Return on assets : Net Income / Total Assets Return on equity : Net Income / Shareholders’ equity Return on capital employed : Earnings Before Interest and Tax (EBIT)/(Equity + Debt) Similarly, Earnings per Share (EPS), liquidity ratios, Cash flow ratios can be calculated for analysis and comparison. Budgetary analysis as a tool for evaluation will be effective as it reveals variances. This will enable the management to compare actual with the budgeted performance for exploring the reasons for variances and take corrective actions wherever necessary. Kumar (2012) stated “Between 1985 and 2007, 51 large companies in the industry consolidated into only 10 organizations… they are effective methods of cutting costs.” Reduction in number of employees post merger, legal expenses, management cost and marketing costs are some of the areas where cost cutting is possible in the merged entity. Determinants of financial results post-merger It is important to determine whether or not the merger generated favourable financial results for the organization post merger. Section of Antitrust Law (2003, p.7-8) states “The size of the geographic will determine the number of competitors in the market, their market shares, and the likelihood of anticompetitive effects. Geographic definition issues have determined the outcome of the majority of hospital merger decisions.” Apart from improvements in operational performance due to synergies created in merger and environmental factors, it is important to note that the method of accounting, for example, purchase or acquisition method adopted for merger or type of financing (equity or debt) the merger has significant impact on the results of the merged organization from investment angle. Therefore, instead of profitability ratios, adopting pretax cash flows and increase or decrease thereof, ...Show more


Healthcare Industry: Post merger analysis Introduction Due to uncertain economic conditions and unfavourable regulatory environment in prevailing in the healthcare industry today, the organizations have few choices but to opt for merger and acquisition to survive in business…
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Healthcare post merger analysis essay example
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