Behavioral health nonprofits face a multitude of challenges today. From low reimbursement rates and federal funding cuts to growing workforce shortages, many non-profit organizations have had to re-evaluate their long-term sustainability in an environment where competition from the for-profit sector continues to rise.
As a result of the current climate, many behavioral health nonprofits are looking at mergers and acquisitions (M&A) as a proactive strategy to preserve organizational longevity amidst escalating funding challenges. The recent news of the upcoming merger of Brightli and Centerstone, which will set an industry milestone with a combined annual revenue of $1 billion, makes a case for behavioral health nonprofits to consider combining resources with like-minded organizations.
In any M&A transaction, insurance and risk management are important factors to consider and plan for before, during and after an agreement is reached. An experienced insurance broker can serve as a crucial resource for nonprofits looking to acquire another company by helping to navigate merger risk management strategies — including due diligence and program integration.
A core element of an acquiring company’s due diligence process should be determining the target company’s total cost of risk — or the sum of expenses incurred by the organization to manage risk that might be assumed upon completion of the transaction.
Calculating total cost of risk entails an assessment of the target company’s:
Once the acquiring organization has a picture of the target company’s total cost of risk, it can then be used as a lens for evaluating the target company’s financials to assess if all cost-related exposures have been adequately identified and captured. By conducting a thorough due diligence assessment with a focus on total cost of risk, acquiring companies can better ensure there will be no surprises after the acquisition due to potential unexpected cost variances from a current or prior insurance program. Further, this information can be used to establish a post-merger/acquisition insurance cost proforma that can serve to identify any ongoing insurance-related cost efficiencies.
Similarly, it also pays for target companies to have a full understanding of their own total cost of risk so they can correct course on issues that may become acquisition obstacles or hurt their appeal to potential acquirers.
Assessing total cost of risk as part of the due diligence process requires extensive data analytics and coverage expertise resources that might not be present within a behavioral health nonprofit’s leadership team or staff. That’s where a broker with substantial M&A expertise can deliver value.
As part of due diligence, an acquiring company should take a closer look at any disconnects or issues uncovered and determine strategies to address them. For example, addressing legacy claims under claims-made policies or assessing the need for representations and warranties insurance (RWI) to protect the buyer from inaccurate statements or seller solvency risks.
At this point, the acquiring company should also map out the structure of the combined company’s risk management and insurance programs to ensure there are no gaps in coverage and to maximize the efficiencies in both programs. In some cases that might mean keeping the insurance separate for a time or it could mean combining some or all policies at close. The acquiring company might also consider what, if any, additional risk management, claims management or safety and loss prevention measures should be implemented.
There isn’t a one-size-fits-all approach to M&A risk management and insurance for nonprofits. Working with an experienced broker partner with an in-depth understanding of M&A transactions will help acquiring organizations ensure they implement the best solutions for their needs.
Insurance and risk management are essential in M&A transactions. Conner Strong & Buckelew has deep expertise to guide clients through every stage of the process, serving as an extension of their team and providing support before, during and after the deal. Starting with a comprehensive due diligence process focused on the total cost of risk, our team delivers holistic solutions tailored for behavioral health nonprofits, helping organizations achieve successful and sustainable deal outcomes to support their long-term growth goals and objectives. Ready to elevate your M&A strategy? Contact us today to partner with experienced professionals committed to your success.
Franz Wagner
Executive Partner, National Accounts
Alexander Buzbee
Vice President, Business Development Executive
Jordan Carter
Vice President, Business Development Executive
