Medical Group Mergers: Making 1 + 1 = 3

When I was a kid, there was a new method of teaching math that was heavily marketed to our parents. It was called the “new math.” It was supposed to make it a way for math to be more easily understood by students.

We kids joked that “new math” was going to make 1 plus 1 equal 3.

As funny as we thought that was, in math class 1 plus 1 never made 3. But, despite our teacher’s inability to conceive that it ever could, in the domain of medical group mergers 1 plus 1 can equal 3. In fact, it should or there’s a large chance the deal shouldn’t be done.

Now when I say “merger” I don’t necessarily mean merger in the true legal sense, although it could be. It could be an acquisition. But in general, I’m focusing on the peer-to-peer combination of medical groups as opposed to a deal in which a local medical group is flat out being acquired by a national practice, whether or not financed by outside investors.

And, by 1 plus 1 equalling 3, I mean that when you structure a merger or evaluate a merger partner, you want to avoid a merger that is merely additive, one that takes 1 plus 1 and gives you 2.

The better approach is to bring on a merger partner that takes the 100X that you’re currently doing plus the 100X that they are currently doing, and which, when combined, results in 300X or even more.

Now, of course, I’m not talking simply about gross revenues all of a sudden making some sort of magical, mystical, metaphysical jump.

What I am talking about is the creation of additional value whether it has to do with the fact that it changes the way you can contract, whether it changes the way that payers look at you, whether it brings on skills that are much easier bought than homegrown, or whether it means expanding into a new geographic area in a way that is far less expensive than by organic growth.

To be truly valuable, to be truly powerful, to be truly rewarding, look for that new math.

Look for deals where one plus one actually does equal 3.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.advisorylawgroup.com

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