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LTC mergers and acquisitions: A CIO’s perspective

June 17, 2017
by Greg Nicholas
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Guest Blog

Long-term care mergers and acquisitions (M&As) can be a traumatic time. In the nearly 60 M&As I’ve been engaged in over the years, no two have been alike. Great attention is understandably paid to seamless transitions in resident care and ensuring the lights stay on. Yet too often, little is known about the incredibly complex and often chaotic process of integrating computers and servers and communication systems with the buyers’ information technology infrastructure. And unlike most front office staff and clinical teams of nurses and aides, those who manage the acquired facilities’ information technology (IT)—many of whom may be short-term, part-time contractors—usually don’t come along for the ride.

A million things can wrong when disparate IT systems are integrated in a haphazard or poorly managed fashion. This is not a plug-and-play world. Operating systems, servers and internal wiring often have compatibility issues. Licensing, lease and maintenance agreements need to be untangled and renegotiated. And, if those who managed all that IT are no longer around during the merging process, there are hundreds of dots that need to be connected.

In a world now so heavily reliant on data, great care and great diligence are required to not only ensure the physical environment is made whole, but that none of that data is left on the floor when the doors open under a new name. Managed poorly, such IT transitions can cost the new owner-operators dearly in downtime and lost or delayed revenues.

Business is booming

At the risk of overstatement, the long-term care industry is booming. Unprecedented numbers of Baby Boomers will be flooding the market over the next 15 years, putting a strain on capacity. The anticipated rate of M&A activity is unlike anything the industry has yet to experience.

Complicating matters is the inventory itself. According to the National Investment Center for Seniors Housing & Care (NIC), the average age of freestanding nursing homes is 37 years—a number that R. Jeffrey Sands, Esq., managing partner and general counsel for HJ Sims, has called “staggering.” Others have described nursing home inventory as one that is facing functional obsolescence.

Considering how rapidly the world of computing and IT is morphing, it’s no wonder IT consultants cringe when they visit decades-old facilities to assess their readiness for integrating with newer clusters and networks. Builders can’t build newer facilities fast enough, because so many of those Boomers who are entering the market are demanding vaulted ceilings, hotel-like amenities, and Wi-Fi-friendly environments. On one integration project I led, several facilities built in the late 1970s required cabling to be installed on exterior walls or near ceilings because the structures themselves were not designed for running modern computer networks.

Size and age matter

During a merger or acquisition, the process of due diligence required with IT is the same—whether it involves a portfolio of facilities or a single building. Each physical building must be treated as a freestanding, fully functioning entity.

But the speed at which you are able to ensure a merged or acquired facility fully integrates with an existing portfolio of technology services is vastly different.

In general, more time and dollars are allocated when several acquired buildings are needing to be integrated. But whether it’s 20 buildings or one, the clock is ticking and there is rarely never enough time to get everything done at once. This requires a phased-in approach: a “day one” plan, a “week one,” “week two” and “month out” plan to phase in all of the needed upgrades and changes.

Surprisingly, single building merger or acquisitions can often be more challenging. Allotted time for due diligence and integration is almost always very tight, and if you don’t know what you’re getting into, in spite of a plethora of written documentation and contracts. This underscores the critical importance of ensuring the proper amount of due diligence is performed—preferably before the ink dries on the purchase agreements.

M&A integration methods vary

A typical IT integration process, including due diligence, can take three to six months, depending on any number of factors from the number of acquired facilities and existing infrastructure to the age and condition of assets. Typical immediate goals may include cutting over the network and phone systems, followed by equipment and service contract review and assessing what kinds of assets were left out of the agreement. The contract review process can be arduous. For example, when you separate individual facilities from a portfolio, every single contract has to be divided and separated—whether it’s printers and faxes, voice and data circuits, or software licensing agreements.

The methods for integration during a merger or acquisition can vary, depending on whether it involves a single building or an entire company, or portfolio of facilities. When groups of buildings are involved, due diligence around the “people” part of the deal can often be more critical than the technology component. In one recent smooth integration I was involved with, three key IT professionals involved in managing 20 facilities worked with us during the transition, and went on to be promoted to higher positions in the acquiring company. Yet in another deal involving 14 buildings, half the IT staff quit before the integration was complete. The lesson is simple: Keeping existing IT staff whole and in place makes the second critical part—technology, foundation, networking and security—so much easier and efficient.