The Rise of Hospital Joint Ventures: A Q&A with Juniper Advisory’s Rex Burgdorfer04.28.15
Hospital joint ventures have progressed significantly over the past several years; they are now a viable option to help organizations provide services or enter markets they would otherwise be unable to access. They have progressed from a way to align with physicians to a means for building hospital systems and now to a potentially revolutionary approach to population health. This trend is a result of the mounting pressures hospitals and health systems face in the current healthcare environment. Yet, fundamental change in the hospital market also paves the way for innovative partnerships - including joint ventures.
For those hospitals and health systems that are financially sound and have sufficient capital, entering into a joint venture allows them to best position themselves for future success—to thrive rather than just survive. Evaluating strategic alternatives from a position of strength allows the board of a hospital or health system to take its future into its own hands and identify a partner that complements and enhances its operations, capitalization, compliance and quality functions.
I recently sat down with Rex Burgdorfer of Juniper Advisory, an independent investment bank working exclusively with hospitals and health systems, to talk more about hospital joint ventures. Over the last 25 years, Juniper has worked with more than 200 nonprofits hospital systems on joint ventures, acquisitions and other partnerships in more than 40 states. Here are a few excerpts from our conversation.
KM: What have been the most important events affecting the hospital M&A market in the last couple of years?
The most notable trend we’ve observed over the last few years is that of hospitals acting from a position of strength. These proactive institutions recognize that their range of strategic options is maximized when they act from strong financial and market positions For many, a partnership exploration is now a proactive and forward-looking act that allows a hospital or system to plan for a future of success and growth.
The second major trend is the surge of innovative partnership structures, and especially the rise of joint ventures. This includes both buyer and seller joint ventures, which create different opportunities according to the goals of the Board that is seeking a partner.
KM: How has your team been able to assist nonprofit hospitals as they confront these issues?
We’re fortunate that our level of specialization - - providing one service (M&A advice) to one industry (nonprofit acute care hospitals) - - gives us insight and experience with how Boards around the country are contending with change. Our approach in assisting a client is always to first help the Board determine what its own goals are, and then to utilize a rigorous and disciplined investment banking approach to pull the best options and potential partners from the market which match these goals.
KM: There is a surge in the number of hospital joint ventures and affiliations today. In your opinion, what are the key drivers for hospitals that are looking to form a joint venture or other affiliation?
An important distinction here is not that hospitals are looking to form joint ventures right off the bat, but that they are seeking benefits that a joint venture can increasingly end up satisfying. For example, many hospitals are seeking access to capital and operational knowhow, which are traditional strengths of investor-owned companies. At the same time, they are also interested in the quality metrics and clinical expertise of an academic medical center. The buyer joint venture is a marriage of these two organizations, allowing a hospital to tap into both parties’ strengths.
KM: What would you say are the hallmarks for creating and executing a successful joint venture or affiliation?
Boards owe it to the organization to consider a range of potential partners and transaction structures. A decision of this magnitude should be made with full information regarding available options, and should use competition to ensure fair market value has been achieved. For this to happen, it is critically important for Boards to work with advisors and counsel who have the experience and skill to execute these important steps. Seeking a partner is not a process that most Boards have ever carried out before. It is a nonrecurring act that represents a tremendous amount of risk and economic value. A successful joint venture depends on a well-executed process.
KM: Are there any models that most intrigue you or that you feel are setting the trend for what we will see in the coming years?
We’ve had the pleasure of working on a number of large, innovative buyer joint ventures in the last few years. These arrangements really seem to be meeting the needs of all parties. From the independent hospital’s perspective, this gives them access to top academic medical center best practices, quality and safety protocols, assistance with recruiting, and the like. From the academic organizations’ standpoint, they are able to grow their system beyond simply an “ivory tower” research institution, which is going to be critical for success under Healthcare Reform to content with Accountable Care, Population Health, etc. Finally, the investor-owned company, per the mandate from their equity sponsors, are able to achieve horizontal consolidation and apply their capital on worthy projects to help the formerly independent hospital thrive.