Financial difficulties are commonly the catalyst for hospitals to begin exploring partnership options. As Rex Burgdorfer, Juniper Advisory Vice President, outlines in his latest article “Valuing the Troubled Hospital”, court-led restructuring is an option often considered by those with liquidity constraints and significant financial liabilities.
For hospitals nearing the zone of insolvency, retiring funded debt, unwinding interest rate swaps, satisfying defined benefit pension plans and covering post-closing risks are significant considerations when negotiating terms. Debt-heavy capital structures combined with today’s difficult operating environment has narrowed the margin of error for sellers. This reality places an increased importance on a complete, accurate valuation of a hospital’s assets and liabilities to guide mutually beneficial terms of a business combination.
These considerations should also encourage Boards of struggling non-profit hospitals to begin their partnership exploration process sooner, from a stronger financial position, and not delay until it’s too late to find a partner.