LTC mergers and acquisitions: A CIO’s perspective

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.

How divestitures are often overlooked

When facilities are being divested, or sold off, often too little care is taken to not only securely de-couple them from their soon-to-be ex-parent, but ensure the buyer is receiving buildings that are whole from an IT perspective. I assured this in every divestiture I have been involved with, but unfortunately, I often didn’t receive the same care and attention in return.

Divestitures have long been part of the nature of the long-term care business. Buildings, singularly or in groups, are often bought and sold several times. Good IT professionals know the value of planning for such inevitabilities up front by ensuring contracts can easily be de-coupled, email systems transitioned, fileshares are located, and all voice, data services, contracts, and equipment lease agreements can easily and painlessly be carved out. Treating each facility as a freestanding entity allows this to happen with much great agility and efficiency. Absent this, the costs could be dear.

Build vs. buy considerations

For many reasons, newly constructed facilities are more easily integrated with buyers. Typically, there are accommodations made for upgrading wiring and Wi-Fi-friendly walls, openings and floors, for example.

When older facilities are involved, it’s easy to underestimate the integration and upgrade budgets. In new construction situations, it’s usually the opposite. With amenities like CAT-6 cabling and cloud-based network management, there are no gaps, and the assets are new. And if the equipment and connections are configured and installed properly, reliable access is assured, your communications services are extended, and there’s no disruption of services.

I quickly learned this when comparing two separate integrations in the same municipality a few years ago. One was a new build, and the other was an aging facility where the number of service tickets were quadruple those in the new facility. In short, building from scratch and being able to put in the latest and greatest of all IT services vastly changes the day-to-day impact on the staff in the facility, as well as the impact on the IT team and their ability to support it.

The importance of organizational change management

All of the most modern, high-tech, sophisticated medical technology in the world provides no guarantee a nursing home resident is going to receive the best quality care. The same can be said for IT. It’s the mantra I repeat with my team before every IT integration project: “It’s people first.” Servers can be replaced. Wiring re-routed. But protecting the intellectual capital of existing IT staff can often spell the difference between a lengthy and costly integration, or a seamless transition.

It’s a fact: Long-term never over-staffs. It’s easy to lose IT staff during a divestiture or merger; it’s exponentially harder to replace them later on. There’s a dearth of highly qualified IT talent inside nursing homes, and if you happen to be considering acquiring a facility that has it, hold dear to them.

If in-place IT staff immediately sense they are not part of the process, if mutual trust is never established and integration teams fail to perform the proper due diligence in assessing all of the assets—both people and equipment—problems will likely dog the environment for years to come.

On the first day of every M&A integration I’ve ever headed, I made face-to-face meetings with IT staff a priority over physical inspections. We would meet for breakfast, conduct meetings, go to lunch, conduct more meetings, go to dinner, and repeat until I felt completely confident I’d properly vetted every person I felt needed to stay. For those highly competent staff who made alternate job plans, I offered retention bonuses to help through the transition. And in more instances than not, those who stayed with the acquiring organization went on to earn more with greater responsibilities.

Common pitfallls

Speeding through or failing to perform due diligence and integration planning. I can’t imagine why anyone would want to rush due diligence and integration, but it happens every day. Doing so is a recipe for disaster.

Unstructured due diligence procedures. Lack of due diligence is a huge, and unfortunately, all-too-common mistake. If you don’t look at the environment – from people to PCs and beyond – you get what you pay for.

Failing to negotiate appropriate levels of access during due diligence. Avoiding transparency, or not disclosing issues or problems with your IT system to an acquiring party and its integration team will almost assuredly cost you a great deal of time and money. In one acquisition a few years ago, the seller held off allowing my IT team into the building until a few days prior to close. When we arrived, we ran into a maelstrom. Aging and failing servers, PCs, and equipment, much of it riddled with viruses and bugs. Brittle wiring. Non-functioning backup generators and battery backups. I spent more than $37,000 the first month just restoring functionality. Weeks went by before the facility could safely and securely be connected to the corporate environment. Now, when a seller hedges on allowing quick access, that’s a red flag that usually results in tens of thousands of up-front money being asked for before an agreement is signed.

Not including representatives from key functional areas during due diligence. Every single divestiture or merger/acquisition requires than representatives from every department to engage in some fashion during the due diligence. It is an essential and critical component of transparency, and efficiency. Every staff member that is staying on deserves to know what they’re getting. If you are an owner-operator, having a properly assembled acquisition team makes all the difference in the world.

Incompletely transitioning at divestiture. Believe it or not, in their zeal to seal the deal, parties to a merger, acquisition or divestiture often leave many I’s undotted and T’s uncrossed. Years ago, I was hired to oversee IT in a company that had recently added 50 buildings to its portfolio without completing the integration. I was met with a host of failing services and duplicative and costly contracts (from prior ones never being terminated).

Greg Nicholas is managing partner of OptimizeHealth, a Dallas-based provider of IT solutions designed for long-term and post-acute settings.  A 20-year healthcare technology veteran and former CIO, Greg has led large-scale IT initiatives and integrations for companies such as UnitedHealth, Optum, DaVita, CVS/Caremark, the Department of Defense, Empire Blue Cross Blue Shield and WellCare, among others.

 


Topics: Executive Leadership , Information Technology , Uncategorized