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Sample Essay on Post-Merger Analysis

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Sample Essay on Post-Merger Analysis

The key business drivers behind consolidation of health care organizations constitute; the need to exploit business strategies that allow a post-merger to maximize revenues while reducing costs; the desire for survival, and the requirement of financial stability. The aspect of strategy as a business driver stems from the need to exploit new markets and gain a better share of the market, the benefits associated with economies of scale and vertical integration, ease of access that relate to mergers, and thus better loan acquisition negotiations. In the current health sector, there is stiff competition that requires heavy investment in marketing activities that in most cases, a particular health care organization cannot provide. Merging facilitates the integration of the assets of the two companies, making adequate marketing achievable and successful (Burns, Bradley, Weiner, & Shortell, 2012).

 In addition, merging creates a single pool of health care products, and services that enables the merger-organization to offer high quality health care services and products thus; such businesses are able to enjoy economies of scale. A larger capital base that results from mergers enhances vertical integration and the ease of accessing debt facilities that further improves their operations since debt has an inherent tax shield that benefits these companies. Merging of health care companies has seen their financial stability become a reality as they integrate their individual financial resources (Burns, Bradley, Weiner, & Shortell, 2012).



Financial Performance Evaluation Criteria of Post-Merger Organization

A business analyst would use stock price and post-merger accounting data evaluations as criteria for assessing the financial performance of a post-merger. Stock price evaluation is a criterion that focuses on the inefficiencies that exist in the stock market that affect the impact on the financial performance of the post-merger company. Stock price evaluation gives an insight into the alterations in the value of shareholders’ equity. There are several researches in the past that try to dismiss stock price evaluation; as an effective business evaluation criterion for evaluating the financial performance of post-mergers. However, this criterion is considered ineffective, its dismissal stems on the argument that stock price evaluation criterion is unable to reveal the distinct differences between inefficiencies within the stock market and the improvement in business performance associated with mergers. Furthermore, there are other various elements of the stock market that may affect the prices of stock other than factors associated with the nature of post-mergers (Burns, Bradley, Weiner, & Shortell, 2012).

Nevertheless, there is application of post-merger accounting information, particularly financial ratios computed from the financial statements of the post-merger. Financial analysts regard this criterion as more credible and, therefore, the better and safer approach to test for the operating performance of the post-merger. Financial ratios classify into five groups: Liquidity ratios are used by the business analysts to measure the ability of the post-mergers to settle their short-term financial obligations using their current resources. Post-merger company is financially sound if it can pay off its short-term debts with the help of its available current assets. The activity ratios act as a precise measure that helps reveal the level of effectiveness with which the post-merger utilizes its assets. Effective utilization of assets is a key function to better business performance as minimization of costs and maximization of profits depends on the manner in which the assets of the post-merger company utilizes its assets efficiently and effectively. The business analysts also apply profitability ratios to assess the operating performance of the post-merger. Profitability ratios provide the basis for the proportion of every dollar generated by the post-merger company that that it reflects in the form of profits. Financial analysts employ financial structure viability ratios to allow them to evaluate the ability of the post-merger to pay off its long-term financial obligations on a perpetual basis. The business analysts can evaluate the financial performance of the post-merger businesses using the investment ratios. The investment ratios assess the share price, dividend per share, and the net-worth of the post-merger health care company (Burns, Bradley, Weiner, & Shortell, 2012).

Determinants of Favorable Financial Performance

There are both inside and outside determinants of favorable financial performance of a post-merger organization. The internal factors include; adequate capital, efficiency in management, adequate capacity of the post-merger organization to manage risks, and quality of health care stock. Adequate capital enables the health care post-merger to acquire the necessary health equipment and infrastructure. Thus, the organization can undertake its health care activities effectively. The efficiency in the management of the organization ensures that the assets of the company are reserved and only channeled toward the achievement of the company’s ultimate goal of making profits. Management efficiency also involves the efficient management of liquidity of the post-merger organization. The favorable financial performance of the post-mergers is dependent on the efficiency in liquidity management. Normally, business operations are subject to certain risk factors from the business environment that may lead to financial loss if not (In Pauly, In McGuire, & In Barros, 2012).

Therefore, the favorable financial performance of any organization depends on how efficiently the management can manage these risks by employing the effective financial risk identification and risk mitigation measures. Moreover, the quality of health care stock is one of the key determinants of favorable financial performance. For instance, high quality health care facilities and equipment attracts a large number of patients and enhances faster and quality delivery of health care services, an aspect that may subsequently translate into huge profits for the organization (In Pauly, In McGuire, & In Barros, 2012).

On the other hand, the external determinants for favorable financial performance would include; political stability, favorable health care legislation, low cost of borrowing in the health care sector, and positive economic growth. Political stability provides a favorable environment for growth of any business. For instance, indicators of political stability, such as wars cause havoc to business, eroding any financial benefits they ought to realize. The ability to easily access external borrowing is one of the merging reasons. The interest rates and cost of borrowing capital is vital to the achievement of capital adequacy. Thus, the low cost of borrowing enables the post-merger organizations to access adequate capital to facilitate efficiency in their operations, hence the realization of profits. Additionally, a growing GDP indicates an economic growth that ultimately impacts positively on the financial performance of businesses. During the phases of economic growth, health care organizations also benefit from the favorable financial returns relating to such business booms (In Pauly, In McGuire, & In Barros, 2012).


Key Financial Drivers of the Financial Planning Process in the Post-Merger Phase

The key financial drivers of the financial planning process in the post-merger phase constitute profitability, viable expansion, and sustainable growth. The financial planning process aims at ensuring that the business does not incur unnecessary losses and that future expansion is achievable at a sustainable consistent growth level. The financial drivers help keep the financial operations of the post-merger organization on the right direction (In Pauly, In McGuire, & In Barros, 2012).

High Value of Financial Planning Process to Health Care Organizations

Financial planning process to health care organizations is of high value. It helps the organization to manage its cash, focus on its daily operational activities, set achievable targets, prioritize its operational expenditures, and also, be able to evaluate its performance progress. This argument is premised on the fact that any business can never realize its established goals and objectives without a clearly defined financial plan. Thus, lack of a financial plan means confusion and lack of direction (Borkowski & Deckard, 2014).

Prediction of Financial Stability of the Health Care Industry

The health care industry is likely to realize an improvement in its financial stability over the next five years. Various reports from the health care providers indicate a high probability of increasing numbers of the mergers and consolidations in the health care sector. This face points to the increasing desire of health care organizations to realize the full potential of mergers. Furthermore, the health care providers expect to recover continually from the recession that saw organizations suffer bad debts, and high rise of charity care. In addition, the political class is increasingly formulating health care policies and Acts that pose a friendly environment for the growth and prosperity of future health care organization mergers and consolidations. These reports coupled with other legislative factors prompts a sense of commitment to ensuring consistent financial stability of the health care providers in the future (Borkowski & Deckard, 2014).























Borkowski, N., & Deckard, G. J. (2014). Case studies in organizational behavior and theory for health care. Burlington, MA: Jones & Bartlett Learning.

In Pauly, M. V., In McGuire, T. G., & In Barros, P. P. (2012). Handbook of health economics.

Burns, L. R., Bradley, E. H., Weiner, B. J., & Shortell, S. M. (2012). Shortell and Kaluzny’s health care management: Organization, design, and behavior. Clifton Park, NY: Delmar Cengage Learning.









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