Healthcare Business Survival Through Restructuring

Healthcare Business Survival Through Restructuring Dr. Elijah EzenduFIMC, FCIM, FCCM, FIIAN, FBDI, FAAFM, FSSM, MIMIS, MIAP, MITD, ACIArb, ACIPM, PhD, DocM, MBA, CWM, CBDA, CMA, MPM, PME, CSOL, CCIP, CMC

Ice Breakers“You will either step forward into growth or you will step backinto safety.” – Abraham Maslow“Without continual growth and progress, such words asimprovement, achievement, and success have no meaning.”– Benjamin Franklin“The strongest principle of growth lies in the human choice.”– George Eliot“It is not the strongest of the species that survive, nor the mostintelligent, but the one most responsive to change.” – Charles Darwin

What is Restructuring?“Restructuring can be construed as action for change in financial structure, business portfolio or ownership so as to increase the value of a firm.”Source: Elijah Ezendu, Restructuring“A significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which are causing some form of financial harm and putting the overall business in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business.”Source: Investopedia“A fundamental change in the way in which an organisation is structured that may involve increasing or decreasing the various layers of staff between the top and the bottom of the hierarchy or re-assigning roles and responsibilities within it.”Source: HRdictionary.com

Driving Forces of Restructuring Advancement in Technology Stock Market Increasing Competition Globalization Regulatory Shift Inability to Attract the Right Experts Evolution of Subsidiaries Correction of Valuation Blunder Decision-Making Dynamics Structural Paralysis Rambling Business Model Collapse of Strategy Industry Trend Utilization of Opportunities

Financial Perspective of Restructuring Assets Liabilities Either OrReorganize Debt Reorganize the the Business Operating Financing Cash Flows Equity

Types of Restructuring1. Portfolio Restructuring: Reducing or Increasing a firm’s business. For example, acquisition or spin-off2. Financial Restructuring: Altering a firm’s capital structure. For example, LBO3. Organizational Restructuring: Rearranging the organizational structure, system or design template of a firm. For example, downsizing.

AllianceAlliance is definite agreement between firms such that each shall commit resources to achieve common set of objectives.

Alliance in Medical PracticeAlliance provides unlimited opportunities formedical practitioners to build, nurture andharness partnership resources for resolution ofeffectual synergies, in pursuit of individualcareer objectives.

Rationale for Alliance

10 Steps to Successful Alliancei. Establish clear strategic purposeii. Find a fitting partneriii. Allocate tasks according to competenciesiv. Create incentives for cooperationv. Minimize conflict between partnersvi. Encourage continual communicationvii. Exchange personnelviii. Operate with long time horizonix. Develop multiple joint projectsx. Be flexible

Determinants of Success in Alliance Alliance Source: Elijah Ezendu, Alliance Development

Types of Alliance1. Joint R & D2. Licensing3. Preferred Suppliers4. Co-Marketing5. Coopetition6. Minority Investment7. Joint Production8. Equity Joint Venture9. Multi-Partner Consortia10. Outsourcing11. Collaboration

Collaboration in Medical PracticeCollaboration is one of the most extensivelyimplemented alliance in medical practice. Itallows for practitioners to leverage expertise ofothers so as to provide an endearing level ofcustomer satisfaction to clients.

“To increase access to health care, enhancequality and manage costs, we must embark on aprocess of collaboration and interdependence.”- Prof Morgan Chetty, Practice Matters: Collaboration and Interdependence ( Medical Chronicle)

Types of Collaboration• Loose Collaboration• Definite Collaboration

Loose CollaborationThis is an unstructured agreement between twoor more practitioners/clinics/medical centers forhandling cases together or effecting referrals.It’s usually established through ‘word of mouth’engagement devoid of broad clarification.The major problems of loose collaboration stemfrom challenging expectation management andlopsided consideration.

Definite CollaborationIt’s a structured agreement between two ormore practitioners/clinics/medical centers forhandling cases together or effecting referrals. Itshould feature a clear framework of relationshipshowing standard of work, performanceexpectations and mutually acceptableconsideration well-crafted as tenets of anendorsed Memorandum of Agreement (MOA).

Benefits of Collaboration• Provides enablement for achievement of customer-centred service.• Enhancement of customer satisfaction.• Facilitates management of clients (patients) throughout the collaborative value network.• Gives room for accelerating quality of service throughout the collaborative value network.• Boosts interdisciplinary communication and productivity.• Builds a lock-in system for promoting customer engagement

ExerciseDr Johnson is a medical practitioner, who ownsa small-size clinic that has a ward-strength of 6patients. What alliances can he develop forenhancing total services?

The Phases of Alliance

Interconnectivity of Strategy and Capability Competitive Strategy Alliance Alliance Strategy Capability Alliance Alliance Alliance Design Implementation Management Review

Factors that Determine the Right Partner i. Complimentary objectives ii. Complimentary capabilities iii. Proportionate risks iv. Controllable rivalry v. Compatible management styles

Problems of Strategic Alliances  Risk of too much dependence  Risk of skill drain  High cost of operations  Difficulty in integration  Risk of losing secrets  Incompatibility of firms  Absence of clear details of responsibilities

Coopetitive System of Value CreationThis is a strategic interdependence that emerges between diverse firms due to blending of competition and cooperation. Coopetition Competition Cooperation Source: Elijah Ezendu, Restructuring

Coopetition StrategyCoopetition strategy is a type of inter-firm strategy which permits and constrains the competing firms involved in alliance to manage a partially convergent interest and goal structure while creating value by means of coopetitive advantage.

“The physicians find themselves in certainsituations where cooperation is appropriate. Astrategic relationship with a hospital mayrequire some occasions of cooperation wherepartnering on a joint venture may bring a newservice to the community while simultaneouslycompeting with the same hospital to provide adifferent outpatient service.” - Grace Terrell, Time for Coopetition is Now

“Do other opportunities exist for coopetition inwound care? I believe they do. Lets considerthe possibilities for a moment. Visualize an ever-expanding global wound care pie, with its slicesrepresenting patients, practitioners,manufacturers, educational conferences, andaccreditation and certification programs.Imagine more and more entrants to the woundcare industry, joining forces with each other togain a piece of the greater pie.” - Richard Salcido, Coopetition in Wound Care

Mergers and AcquisitionsA merger occurs when two or more firms agree to move forward as a single new organization, instead of remaining separately owned and operated.Acquisition occurs when one firm takes over another thereby establishing itself as the new owner.

Reasons for Mergers and Acquisitions• Financing• Speedy external growth• Risk Reduction• Availability of exploitable situation• Competition• Hubris Hypothesis• Sales enhancement and operating economics• Improved management• Better information about profitability and position of business• Staff reduction• Wealth transfer• Management personal agenda• Acquisition of superior technology• Taxation• Diversification

“The rules of healthcare are changing. Today,growth isn’t about just getting bigger. It’s aboutdeveloping all of the components needed forcoordinated care and reduced costs.” - Source: HealthLeaders Media, Hospital Merger and Acquisition Strategies

Merger and Acquisition Deal

Types of MergersThe following are distinguished by relationship• Horizontal Merger• Vertical Merger• Market-Extension Merger• Product-Extension Merger• ConglomerationThe following are distinguished by financing• Purchase Merger: A firm pays for another with cash or debt instrument such as bills, bonds, certificates of deposit, banker’s acceptances• Consolidation Merger: Merging firms are bought and combined under new entity

Types of Acquisition• Conventional Acquisition: A firm buys another with cash, stock or combination of the two.• Acquisition by Asset-Purchase: Company A buys all the assets of Company B for cash, then Company B will have only cash (and whatever debt they had before) and become a shell, which may eventually liquidate or enter another area of business.• Reverse Merger: A private firm in a bid to raise financing buys a publicly listed shell firm, and moves thereinto in so doing become an entirely new firm with tradable shares.

The Rise of Fortis Global Healthcare Holdings Pte Ltd Through AcquisitionFortis acquired Hong Kong-listed Quality Healthcare Asia Ltd (QHA) for aboutRs 882 crore. With this Fortis Global got a network of over 60 wholly-ownedmedical centres, over 500 affiliated clinics, over 40 dental and physiotherapycentres, and a private nursing agency with a database of over 3,000 nurses inHonk Kong.Then it offered to pick up controlling stake in the Australia based DentalCorporation. Dental Corporation is the largest operator of dental practice inAustralia and New Zealand with presence in 135 locations.Fortis Global has also announced the acquisition of a cancer specialityhospital project in Singapore for Rs 115 crore. Adapted from The Hindu Business Line

Competitive Intelligence in Inter-firm RelationshipsCompetitive Intelligence should be used for generation of equitable due diligence report highlighting the following: Return on Investment (ROI) Compounded Annual Growth Rate (CAGR) Gross Profit Margin (GPM) Production Capacity to Fill Product/Services Mix Cost Structure Customer Satisfaction/Loyalty Intellectual Property Portfolio Competitive Differentia Corporate Culture Talent Mass People/Knowledge Acquisition Employee retention Liabilities Deal complexity and risk Ownership structure Strategic Motive of RelationshipAscertainment of Strategic gap, which is the difference between current and desired state.

Why M & A Fails1. Deals done due to highly rated stock without proper strategic analysis2. Imitation of industry trend3. Action was driven by idiosyncrasy instead of business strategy4. Action was done for personal glory5. Erroneous influence from bankers, advisors and lawyers6. The goal of buying a stiff competitor can be misleading7. Fear can induce firms into defensive mergers8. Post-Merger problem of managers trying to cope with integration9. Irreconcilable differences in corporate culture10. Focus on cost-cutting while neglecting revenue momentum11. Passion of top management for deal bonus regardless of outcome12. Lack of communication13. Incorrect due diligence report14. Loss of key personnel

DivestitureThis is the outright sale of a firm’s asset, division or subsidiary either as a fundraising measure or strategic alignment aimed at eliminating unfit organizational components or in defense against take over or due to low profitability.

Equity Carve-OutA parent firm makes a subsidiary public through IPO, and selling small percentage to the public while keeping controlling stake.

Reasons for Equity Carve-Outi. Focused managementii. Unlocking hidden valueiii. Tax Factorsiv. Impetus of growth strategyv. Lack of strategic fit

StarburstingThis is the break-up of a star-like firm intosmaller firms by delineating core business and acollection of other focus areas, giving room forthe parent company to concentrate only on itscore business and allow relevant business unitsto spring up as individual firms, wherefore eachwould concentrate on applicable focus area.

Advantages of Starbursting• Development of Focused Management• Effective Distribution of Corporate Debt• Development of Specialised Talents• Reculturalization of Business Unit to Best Industry Fit Instead of ‘One-Size Fits All’.• Leadership Devolution to Business Unit.• Boosting Aggregate Value for Shareholders.• Increase in Operational Efficiency• Appropriate Strategic Positioning to Explore and Exploit Each Focus Area.

Spin-OffsThis occurs when a subsidiary becomes independent company through distribution of its shares to shareholders of the parent firm, usually on a pro rata basis.It can’t be used for immediate fundraising.

Other Forms of Restructuring  MBO  EBO  LBO  ESOP  Exchange Offer  Troubled Debt Restructuring  Workout  Liquidation

RightsizingThis involves ascertainment of targeted servicerequirements, implementation of workloadmechanics for identifying distinct jobcontributions, execution of job redesign foreffectuality, repositioning of job roles anddevelopment of performance-fitting structure.

Rightsizing usually give rise to shrinking ofoversize units, expansion of understaffed ones,as well as establishment of new essentialsections or departments.

DownsizingIt’s a type of organizational restructuring that focus on streamlining, tightening and shrinking organizational structure with respect to workforce.

Alternatives to Downsizing• Early retirement as a method for inducing voluntary shrinkage• Establishment of programmes for trimming waste• Across-the-board salary cut.• Perform hiring-freeze and halt recruitment.• Retraining employees, and adjust them strategically• Transfer of employees from area of non-requirement to necessities• Reduction of the work-week• Reduce the size of workforce by attrition• Implement furlough• Introduce contract labour into the workforce

Case Examples1. Acquisition of Regency Hospital Company LLC by Select Medical Holdings Corporation thereby expanding network of acute care hospitals from 89 to 112. Value of deal was $210 million. Deal Date: June, 2010.2. Acquisition of RehabCare Group by Kindred Healthcare Inc for the purpose of penetrating the market, reducing cost, while expanding offerings and operational locations. Value of Deal was $900 million. Deal Date: Feb, 2011.

Case for ReviewZinohive Medicare is a healthcare business that providesservices in 10 locations. It operates the following specialisedcentres:1.Trauma Centre2.Wound Healing Centre3.Paediatric Centre4.Cancer Centre5.Heart Centre6.MaternityThe management intends to enhance total value to shareholdersand boost service growth. In your viewpoint, what is the bestrestructuring option for the organisation?

Dr Elijah Ezendu is award-winning business expert and certified management consultantwith expertise in HR, OD, Competitive Intelligence, Strategy, Restructuring, BusinessDevelopment, Sales & Marketing, Business Turnaround & Interim Management, Leadership,ADR, Project & Programmes Management, Cost Management, Outsourcing, Franchising,Internal Control, Intellectual Capital, Online Business, Social Media, Software Architecture,Cloud Computing, eLearning, Business & Tech Integration, Social Impact Analysis, andInternational Business. He holds proprietary rights of schematic methods in HR, Strategy,Competitive Intelligence, Business Model, Business Development, Negotiation, CSR, SocialHR, and Social Media. He is currently Chief Executive Officer, Rubiini, UAE. He functioned asSenior Partner, Shevach Consulting, Nigeria; Lead Assessor and Member of GoverningCouncil, Institute of Management Consultants, Nigeria; Lead Resource, Center forCompetitive Intelligence Development; Lead Consultant, JK Michaels; Technical Director,Gestalt; Chief Operating Officer, Rohan Group; Director, Fortuna, Gambia; Director ofProgrammes, Institute of Business Development, Nigeria; Member of TDD Committee,International Association of Software Architects, USA; Member of Strategic Planning andImplementation Committee, Chartered Institute of Personnel Management of Nigeria;Adjunct Faculty, Regent Business School, South Africa; Adjunct Faculty, Ladoke AkintolaUniversity of Technology, Nigeria. He holds Doctoral Degree in Management, Master ofBusiness Administration and stands as Fellow of several professional institutes in NorthAmerica, UK & Nigeria. He is an author and world-class speaker who has featured in manyworkshops & conferences. His ancillary services included council member of professionalinstitutes, editor-in-chief of journals, and Board Member of some Foundations. He serves asAdjunct Faculty of Business Schools in addition to Director of Firms.

Thank You

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Healthcare Business Survival Through Restructuring

by Elijah Ezendu on Jun 09, 2011

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