It’s a given in this day and age that technology is the root of a lot of how Healthcare gets done. You’ll often hear doctors say “we are run by the IT department.” In many instances, that’s true.
So why are the IT experts the last people invited to the party when evaluating a hospital or medical practice merger or acquisition?
The technology employed by an M&A target is an extremely important component for determining the relative value, the relative time for potential integration, and in the long run, the success of an acquisition in fulfilling the financial goals and objectives set forth by the buyer.
Unfortunately, when an acquisition is taking place, many times that IT component is overlooked as the more simple financial questions are posed; how many people are in the IT department, what is the annual budget, and what is the value of the assets? Those are all important questions to get answered, but an analysis of the quality of the IT department and the infrastructure itself is even more crucial.
Senior management might say, “I don’t understand IT networks.” But they do understand computers. If you walk down and you saw old two-foot by three-foot long work stations underneath desks, with monitors that were 2 feet thick like we had in the 1990s, you’d be concerned because those are obviously old, not very efficient, and well past their end of life expectancy. It’s no different for those people that understand network hardware.
When we’re brought in to do a review as part of a truly comprehensive acquisition analysis, we start at the baseline infrastructure. We evaluate the routers and switches and firewalls and wireless access points for relative age, configuration, and up-to-date operating systems.
And the results often say a great deal about the quality of the organization.
It says something about the emphasis they put on maintenance. If they didn’t feel that keeping their IT systems up-to-date is important, do they feel the same way about their HVAC system? What about the physical maintenance of their building? So you can draw a correlation to the relative desire to do upkeep and regular maintenance on any other components, by what you’re seeing with the IT department.
We call it “technical debt” and depending on the score, there’s a direct correlation to the time it will take to integrate that organization into the acquirer’s network. Look at the underlying infrastructure. Look at current work processes. Are operating systems up-to-date, are they current on their security patches, and are they running appropriate technologies for today and tomorrow?
And that’s just the beginning.
Technical debt evaluation leads to an analysis of IT personnel. Do they have a quality staff or people that are just there collecting a paycheck and trying to keep the lights on? Are their systems so outdated that it’s preventing the IT department from being a proactive rather than reactive resource? That can be an indication of the ability to properly prioritize spend, and that leads to questions about compliance. Are they truly safe or are they playing a little Russian roulette with potential HIPAA violations or worse than that, a breach?
An aggregation of technical debt, is a bellwether for the relative focus on effectiveness, quality, and security.
IT analysis and M&A due diligence are one and the same. What will it take to recognize that and change the merger and acquisition process? It’s the old adage, “fool me once shame on you, fool me twice shame on me.”
- It’s exceeding budgetary estimates for the actual integration of IT systems.
- It’s exceeding timelines.
- It’s potential regulatory deficiencies that weren’t seen because no one looked for them.
Statistics say that 9 out of 10 mergers fail to reach their financial potential. A little help in the IT due diligence department can change that.