LTC mergers: Transitioning the culture clash

It’s easy to get caught up in the financial and legal aspects of a merger. While those are indeed critical, an equally important piece of the process is acknowledging the streamlined combination of two often different cultures also is integral to success.

The healthcare industry is in the midst of reform, and consolidation is on the rise. This is particularly true of long-term care (LTC) facilities. For most organizations, adding value and gaining stronger market share are on the acquisition wish list. A large number of mergers are also driven by aging executives who are hoping to solidify their succession plan by combining with an organization that has younger leadership.

LTC companies have everything to gain and much to lose if they don’t pay attention to the human aspect of the deal, particularly when it comes to facilities where the quality of the staff has a direct link to the performance of the business. The goal is to have a smooth integration process that puts emphasis on open communication so that you can retain the quality staff on which the business depends.

Culture clash

Culture is a big deal and should be considered from the beginning of a merger process. People tend to forget about it until it’s too late and they’re left picking up the pieces.

Cultures are inevitably different. It’s important to find an organization through due diligence that aligns culturally with yours and to make the effort to understand the behavioral norms of both organizations—not only senior management, but also the rest of the staff. Take the time to learn the messaging of the other organization and how things are done. Whether you’re the acquiring organization or the one being acquired, it’s important to acknowledge that one culture won’t necessarily trump the other. Instead, the two will result in something altogether different.

Due diligence

Managing an organization’s culture changes while merging two companies is a process. Do your homework and have a plan in place to manage the transition. Here are some integral aspects of the plan that should be mapped out:

• Communication. Meet with employees at every step to make sure they’re comfortable with the transition and be as transparent as you can be.
• Integration. Conduct interviews with management to understand management styles and priorities. Consider surveying employees or sitting next to them while they work. Interviewing customers also may produce valuable insights.
• Tactical. Make a list of each item that will need to be streamlined—software, for example—and create a timeline for it to happen.

Don’t underestimate communication

Communication is key throughout the entire merger process. Some company information can’t be shared, of course; but work hard share information with employees at both companies to the extent possible, from the very beginning. For example, hold an all-hands meeting to discuss the notion that you’re considering a merger. The other company can’t be identified at that time, but you can still assess what the employees think and if there are any concerns. Another way to help break the ice is to hold social mixers for employees at both organizations to start developing relationships before a merger is even finalized. Once a deal progresses, consider putting together a task force to help with integration.

Risks

Culture is difficult to measure. During a merger, it’s common for people involved to feel frustrated and anxious about the stability of their jobs.

Productivity, morale and retention can suffer dramatically when the integration process isn’t handled well. This can trickle down to affect operations and financials. An unhappy employee may struggle to deliver quality service, for example, and that may trigger residents at an LTC facility to leave. Worse, their health might suffer because of a struggling employee.

There are other potential consequences when employees on one or both sides of a merger are unhappy:

• Reputation risk
• Increased likelihood of accidents
• Attrition of valuable employees you hoped to retain
• High employee turnover
• Market share loss for one or both companies involved.

People have an uncanny ability to sense when things are happening in an organization. Being transparent from the very beginning will help bypass rumors and will also help you gain the trust of talent that you’d like to retain. Take the time and care to get things started on the right foot so that the value and market share you’re hoping to add to your organization indeed stays in­-house.

Amy Runge, a CPA at Moss Adams, has more than 23 years of accounting experience and manages audits of continuing care retirement centers, skilled nursing facilities, assisted living facilities, and other healthcare organizations. You can reach her at amy.runge@mossadams.com.

Luc Arsenault, a partner at Moss Adams, has practiced public accounting since 1992. He specializes in transaction due diligence ranging in deal size from several million to $20 billion. Luc is chair of the Transaction Services group. He can be reached at luc.arsenault@mossadams.com.

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