Transaction Advisory Services: National Not-For-Profit Academic Medical Center’s Affiliate Divestiture Creates $70M Healthcare Foundation for Community in Southeastern United States
“Forging Durable Partnerships To Meet Strategic Needs of Healthcare Organizations”
Summary of Work:
Warbird’s M&A professionals were retained to provide a suite of services, including transaction advisory services, for a national not-for-profit academic medical center in its divestiture of an affiliate health system. The affiliate system, a $150M net patient revenue acute care hospital with two skilled nursing facilities, had an annual operating loss of $24 million. Within approximately 12 months’ time, Warbird’s professionals identified turnaround opportunities, provided the affiliate system with both an interim CEO and interim CFO, and closed a $65M transaction that resulted in a local 501(c)(4) healthcare foundation with over $70M in assets.
Background:
The community director members of the local affiliate system’s board of directors contacted Warbird’s M&A professionals and requested that the Warbird team serve as an advisor to the affiliate system’s board of directors during this transition period. The Warbird M&A professionals were initially asked to manage the separation process and secure a new operating partner to ensure the long-term sustainability of the health system.
Once retained, the Warbird professionals immediately undertook efforts to identify the strategic needs of the affiliate and develop an affiliation process that would secure a partner equipped to satisfy those strategic needs.
Areas of Focus:
Transaction Advisory Services. The Warbird professionals aggressively marketed the affiliate system, resulting in seven proposals received from six potential partners. Within six months of being retained, the parties executed a Letter of Intent (“LOI”) with a national, investor-owned hospital operating company. A separate LOI was executed with a national nursing home operator for the two skilled nursing facilities that were a part of the affiliate’s system.
After the LOIs were executed, Warbird’s M&A professionals continued to work with the affiliate system to manage the transaction process and lead in ongoing deal negotiations and a required state regulatory review process.
Identifying Performance Improvement Opportunities. To effectively secure a new partner organization, Warbird’s M&A professionals understood that identifying the affiliate’s performance improvement opportunities was critical. Warbird’s professionals worked with the hospital board, leadership, and the system parent to identify and quantify opportunities for enhancing the affiliate’s operating performance.
Securing Requested Interim Leadership. Additionally, Warbird’s professionals provided the affiliate with requested interim leadership in the form of an interim CEO and interim CFO. Collectively, this identification of performance improvement opportunities and the recruitment of skilled practitioner executives opportunities enhanced the affiliate’s financial performance and bolstered the affiliate’s strategic value in the eyes of potential partners.
Conclusion:
Approximately a year after Warbird’s professionals were retained, the parties successfully closed both the hospital and skilled nursing facilities transactions Together, these transactions delivered $65M in cash consideration, generous capital investments into both facilities over the next 5-years, and important service commitments to ensure ongoing and enhanced access to healthcare services in the community.
Importantly, the transaction resulted in a net benefit for all stakeholders: the local community, the national academic medical center, and the new owners of both the hospital and skilled nursing facilities. For the local community, an allocation of the transaction proceeds were deposited into a 501(c)(4) organization, governed by community representatives and are being used to address the healthcare needs of the region. At close, the community 501(c)(4) organization will control over $70 million of assets and will not be responsible for funding indigent care at the hospital.