Assignment 3: Post-Merger Analysis Assignment Instructions
In today’s uncertain economic and regulatory environment for the health services industry, many organizations may be presented with merger and acquisition opportunities to gain market share and drive financial and operational efficiencies. Given the current state of this market segment:
Write a five to six (5-6) page paper in which you:
- Suggest the key financial drivers that most likely will cause health care organizations to merge. Provide support for your rationale.
- Assuming that two (2) health care organizations have merged. Determine the evaluation criteria that a financial analyst would use to evaluate the financial performance of the organization post-merger, and identify the determinants that the analyst would use to decide whether or not the merger generated favorable financial results for the organization. Provide support for your evaluation.
- Determine the key factors that will drive the financial planning process for most organizations in the post-merger phase, and examine the related impact to the organization process. Provide support for your rationale.
- Create an argument to assert that the financial planning process is of high value to a health care organization. Provide support for your argument.
- Predict the financial stability of the health care industry over the next five (5) years. Provide support for your prediction.
- Use at least three (3) quality academic resources. Note: Wikipedia and other Websites do not qualify as academic resources.
The specific course learning outcomes associated with this assignment are:
- Evaluate the financial statements and the financial position of health care institutions.
- Describe the overall planning process and the key components of the financial plan.
- Use technology and information resources to research issues in health financial management.
- Write clearly and concisely about health financial management using proper writing mechanics.
Health Care Organizations Post-Merger Analysis – Sample Answer
Evaluation of the Financial Performance of Post-Merger Organizations
If two healthcare organisations merge, a criterion should be put in place for the appraisal of the resulting organization’s financial performance. The criterion commences with the analysis of the merging organizations’ financial statements to establish whether their merging is financially logical. Financial analysts should then get the resulting organisations financial statements (Healthcare Financial Management Association, 1982; Gale Group, 1999). If the two pre-merger organisations are in discussions regarding their merging, they may enter into non-disclosure agreements as well as exchange financials. The analysts can also benefit from the available reports filed by equity analysts and relevant news stories about the organisations (Dunham-Taylor & Pinczuk, 2004; Sherman & Sherman, 2011). As they analyze the merger’s financials, the analysts use forward-looking and historical financials to determine its extant financial performance and project its prospective financial performance.
The analysts should use the merger’s income statements to gauge its financial profitability and performance. The statements’ revenue lines show the merger’s top-line momentum and the expenditure lines indicate whether the merger is utilizing the extant financial resources effectively and prudently. The income statements of the pre-merger organisations can be combined to give rise to the merger’s income statement. As well, the analysts should use the merger’s balance sheets and cash flow statements to gauge its financial profitability and performance (Healthcare Financial Management Association, 1982; Gale Group, 1999; Sherman & Sherman, 2011). The balance sheets of the pre-merger organisations can be combined to give rise to the merger’s balance sheet. As well, the cash flow statements of the pre-merger organisations can be combined to give rise to the merger’s cash flow statement.
(Dunham-Taylor & Pinczuk, 2004; Sherman & Sherman, 2011). (Banerjee, 1987; Sherman & Sherman, 2011).
Factors that Drive Post-Merger Financial Planning Processes
There are various principal factors that drive post-merger organizations’ financial planning processes: priorities, organization’s resources, forecasting, and contingency planning. In most mergers, priority is given to the generation of revenue. The generation of revenue is a key consideration in the processes. For instance, if a merger is planning to put up an expansive project and its most reliable clients suddenly deny the merger business, the merger may put the project on hold (Healthcare Financial Management Association, 1982; Sherman & Sherman, 2011).
(Dunham-Taylor & Pinczuk, 2004). Forecasting overhead costs, personnel costs, materials costs, and sales revenues assists mergers in planning for given projects. Mergers require contingency plans to ensure that they plan their financials successfully.
Why Financial Planning Processes are Essential in Healthcare Organisations
Financial planning is important in healthcare organisations since it helps them in cash management, which is important owing to the actuality they have fluctuating revenue, as well as expenditure, levels at different times (Healthcare Financial Management Association, 1982)
Financial planning helps organisations control own expenditures. Besides, financial planning helps the organisations have an improved view of the expenditures that they require to remain on own growth tracks and remain competitive. For example, an organization that has a stringent financial planning regime remains competitive easily since it has a blueprint for persistent enhancement of its performance (Banerjee, 1987; Sherman & Sherman, 2011; Sherman & Sherman, 2011).
Healthcare Industry Financial Stability Outlook
The healthcare industry is likely to become more and more financial stable as more and more healthcare organisations are expected to enter into a merger, as well as acquisition, arrangements with others in the over the next five years. Notably, the organizations’ vertical integration, or merging, will move them towards more chances of shifting towards more and more financial stability and value-based care models that are financially viable according to Deloitte (2016). As noted earlier, most of the organisations that are entering into mergers are doing so to drive own operational and financial efficiencies.
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