Value considerations and merger mania in healthcare

As reported by business intelligence company Pitchbook, specialty outpatient service provider IntegraMed (NASDAQ: INMD) entered into a definitive agreement to be acquired by Sagard Capital for $169.5 million. At $14.05 per share, the price represents a 46% premium to IntegraMeds average closing price over the last year.

Healthcare mergers and acquisitions like the IntegraMed deal aren’t expected to slow down. Healthcare Realty Development Company reports that 2011 saw an 11% increase in the $205.6 billion healthcare merger, acquisition and takeover market compared to 2010--more hospital mergers and acquisitions than any time in the last decade and the uptick is expected to continue in 2012.

As mergers and acquisitions grow, healthcare finance leaders and administrators should consider these key factors that impact value:

Size. Size drives negotiating leverage with payors, the ability to take financial risk for the cost of care in models such as the Accountable Care Organization, and the opportunity to spread the high fixed costs of infrastructure for investments such as electronic health records and medical management of high-risk, multi-diagnoses patients including Medicare/Medicaid Dual Eligibles.

Local market. Healthcare markets are highly localized.  "One size does not fit all" and careful assessment of local market conditions is critical to choosing the right path.

Cyclical Consolidation. Consolidation trends are cyclical and not all mergers and acquisitions work out. A change in market conditions such as the collapse of much managed care at the end of the 1990s may eliminate the rationale for a previous merger or acquisition.