How to Analyze the Market Correctly Before Making Your Merger or Acquisition
In healthcare, we are going through a major wave of mergers and acquisitions and this wave will continue for at least another 3-5 years. Over the years, we’ve been involved in many merger projects. What we have noticed was a common neglect of analyzing the market penetration, overall market share and reach of the newly merged companies.
While the internal financial and operational aspects of merging or acquired companies are usually very well analyzed during the due diligence process, little to no time is spent on understanding the market of the new company. Some of the problems related to this issue:
- There are very few options that can help you truly analyze your catch basin to the extent you now need. We have developed a tool that provides the needed functionality to do this type of catch basin analysis. It can also be done without a tool, although the effort it takes would be fairly substantial.
- There is a lack of understanding and methodology in approaching a true healthcare-related catch basin analysis.
- Many practices lack the necessary information in a meaningful format that allows them to analyze the market information.
Your Needs and Objectives
In my two earlier blogs, I described what constitutes your catch basin and how you should look at your patient population. Before making a final decision on your merger or acquisition, you should know answers to the following questions:
- For each practice location you are considering to acquire, you should know:
- What is the average distance their patients are coming from?
- How big (distance and percentage) is the “core catch basin”, “opportunity catch basin”, “extended catch basin” and “fringe catch basin”?
- Where are high concentrations of patients and where are areas that are under-served/utilized?
- What are the demographics of the catch basin?
- What is your referrer catch basin? Are there areas where you have high concentrations of referrers and are there areas where you don’t have any referrers?
- For acquired practices with multiple locations, you want to understand:
- What are the common demographic patterns of the high performing locations vs. the low performing locations?
- How big is the overlap of the various locations’ catch basins? You want to avoid locations that are too close to each other.
- History and trends: Take a look at the first two items and look at them for each of the past two years and analyze the trends across all aforementioned aspects.
- In addition you want to take the results from the first three items and overlay the results with the catch basin of your existing practice (assuming you went through the catch basin analysis of your existing business first) and understand the strategic impact.
When we do the catch basin analysis we perform the following steps:
- Determine basic catch basin by location
- Determine catch basin impact of locations on each other
- Determine catch basins demographics by location
- Determine demographic patterns by location, categorized by high and low performing locations
- Determine impact of acquired locations on existing catch basin
- Determine opportunities to grow catch basins by location and overall.
- Decreased failure rate of acquisitions that didn’t have the expected impact.
- Improved ability to value a practice
- Ability to judge the impact on the overall company catch basin (coverage and market size).
- Ability to make more effective marketing and investment decisions.
- Better understanding of the patient population.
- Better understanding of the growth opportunities.
- Overall increased success rate.
Especially companies that are aggressively growing by acquisition should make this an integral part of their due diligence process. In my next blog, I will write about how to use a catch basin analysis for a more successful and strategic growth and expansion plan.