Leading Mergers and Acquisitions of Hospitals Merging Essay

  • Length: 7 pages
  • Sources: 6
  • Subject: Healthcare
  • Type: Essay
  • Paper: #74641031

Excerpt from Essay :

Leading Mergers and Acquisitions of Hospitals

Merging and Acquisition

When the size of an organization continuously increases in size, management problems arise. Such large organizations operate through bureaucratic structures. The main factors that make bureaucracy work are standardization, co-ordination and specialization. Bureaucratic structure is very efficient in achieving economies of scale and avoiding duplications. The bureaucratic structure works best when there are clear rules of coordination and a clear chain of command (Cameron & Green, 2004).

The history of company mergers and acquisitions dates back to the 1980s. The most common practice for organizations to counter-act aspects of competition was through the adaptation of technology. Nevertheless, recent research has shown that sophisticated technical expertise is not enough to contain competitive advantage. Elusive resources like culture, organizational leadership, and business processes are also crucial. Through mergers and acquisitions, companies are able to manipulate their own influence by adhering to a series of principles. This paper takes a tour into the nature and form of mergers and acquisitions. The paper employs a case study that includes an analysis of a specialty health care business. The management plans to establish a clinic with the following departments: heart disease, gynecology, dermatology, respiratory diseases, and surgery (DePamphilis, 2011). The management of the clinic has contracted my organization to offer advice for the merging and acquisition process.

Merging aims in combining two existing models. This results to the creation of a new model. The new models reflect the activities and principles of the incorporated models with the aim of sharing risks as well as profits. Mergers and acquisitions help to deal with constraints like bankruptcy.

A merger refers to the situation whereby two firms combine on an equal basis. The initial stocks are retired and new ones issued. Usually, the name of the new company is sourced either from one of the parent companies, or from an amalgamation of the two. The result of merging is that one of the parent companies emerges as the dominant management. Because of economic constraints, it is becoming crucial for companies to commit to mergers (Habilozek & Kovacich, 2005).

There are disadvantages and advantages associated with the phenomenon as discussed at this section. Merging and acquisition are beneficial because they enable the firms involved to increase their gross income. A merger takes place when two firms come together to form one large firm. The resultant firm will experience a reduced level of competition as reflected in its augmented market share. The reduced competition could be unfavorable to the public interest. This forms a platform for the company to generate more profits. Nevertheless, mergers could help the public enjoy economies of scale benefits. This is through the reduction in prices that effect from a reduction in the average costs of the firm. A large firm produces a high level of output resulting to economies of scale. The economies of scale emanate from bulk buying, lowered rates of interest for large companies, a centered secretariat and technical economies through the creation of significant fixed costs. Another advantage of mergers is that it aids in dealing with the threat of international competition brought about by multinational companies (Miller & Amihud, 2007).

Mergers promote the rise of monopolists in the market. A large firm could exhibit monopolistic forces, leading to lower quantity, a reduction in consumer surplus, and higher prices resulting to allocation of inefficiencies. The reduced competition can result to less investment in innovative products, with inferior quality traits. Mergers could also result to job losses. The new firm hires and fires employees in its quest to accommodate new preferences.

As a basic principle, acquisitions and mergers represent a loss of value to shareholders. This means they are cost accretive, avoiding the shares of the acquiring company. Nevertheless, the possibility of moneymaking ventures in the demerged organizations is high. A merger and an acquisition are distinct to some extent. Mergers are uncommon as they take place between two companies that imitate each other in terms of reach and size. Both companies give up their identities to form a new brand. An acquisition takes place when a bigger organization purchases a smaller organization. This takes place regardless of the smaller company's willingness or cooperation. The common motivations are gaining market share and reach, economies of scale, and eliminating a competitor. The main demerit of acquisition is that they fail because of cultural mismatches. Every organization is oriented in the course of time by the background and vision of its management or promoters. This is referred as "company culture" and reflects the way companies project themselves in the market, their social responsibilities, integrity and commitment, and their mode of operation (Page, 2003).

It is difficult for two companies to carry out their transactions the same way. This is despite the two operating within the same sector. When one company buys the other, their cultural differences become evident. This results to losses in key personnel alongside with priceless intellectual property and a customer base (Page, 2003).

The pressure for better healthcare is mounting. Healthcare dealers must choose either to improve on their efficiency or risk being irrelevant. Organizations are forced to pay focused attention to intricate and costly therapies and treatments. Handling these specialized areas (dermatology, gynecology, heart disease, respiratory disease, surgery, and gastroenterology) requires specialized capabilities that call for extensive investment. For most companies, the chance to explore the modern patient dynamics and unique quality of healthcare opens the door for mergers and acquisitions. The market strategy of merging and acquisition would enable the hospitals acquire sophisticated equipments. This would come in handy when dealing with the modern demands of the medical world. Merging and acquisition would also lead to a reduction in overhead managerial expenses (Sherman, 2001).

Doctors moving into larger groups and sharing that quality coverage will have their quality of life improved. When merging occurs, the combined entity will be able to use physician extenders to their maximum capacity. Successful mergers will generally infuse into the entire group consequently leading to a stronger united group. Such a group will be better equipped in dealing with competitive pressures in the current health care environment.

Combining two or more health facilities will lead to such facilities benefiting from acquiring equipment that is more sophisticated and that that reduces managerial costs (Sherman, 2001). In addition, there would be a reduction in competition. Merging of the healthcare facilities would discourage costly duplication of technology and staff. The resultant health facility would be able to utilize the available space properly by transferring some services to its "underused" merger partner.

Doctors moving into larger groups and sharing that quality coverage will have their quality of life improved. When merging occurs, the combined entity will be able to use physician extenders to their maximum capacities. Successful mergers will generally infuse into the entire group consequently leading to a stronger united group. Such a group will be better equipped in dealing with competitive pressures in the current health care environment (Habilozek & Kovacich, 2005).

Bringing together two or more health facilities may also have some shortcomings, which include reduced morale of personnel; as they will feel insecure about their jobs. Difficulties will also arise in changing a professional bureaucracy. Physicians and nurses will have difficulties in accepting decisions taken by others regarding their working conditions. The professionals have their own working practices, demands for quality and ethical rules. Their loyalty towards their employer is less than their loyalty towards their own colleagues.

Through a SWOT (strength, weakness, opportunities and threats) analysis, the feasibility of the resulting company could be determined. Through an extensive feasibility study of the company after the merging and acquisition process, my organization can confidently offer advice to the client (the management). The assessment is carried out on a sketch design, to determine whether the managements of the companies posses the technical expertise to bring he project to completion. The healthcare specialists need guidelines on how to set up a successful healthcare specialist hospital. The hospital need sub-division into specialized departments thus the need for superior technology. The specialists also need to place special attention to staff morale. Professional advice would dictate that the management should come up with strategies for boosting employee morale before the acquisition process. The business needs a complete makeover. The management needs new partitions for the hospital. The partitions represent specialized departments to feature in the strategic plan. The new departments could have been absent in the previous business unit. Before commencing operation, the management should identify internal and external problems (threats). The internal ones like under-paid staff, inferior technology, and others handled through internal measures and controls. The management could contract experts to address their external problems for a successful take-off of the investment. The merging and acquisition process would lead to expansion of the company. This would form a brand with added strength in the market. A company that has undergone a merging and acquisition process would have its market shares increased. This will occur at the expense of a…

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