Post-Merger Analysis

Post-Merger Analysis

1. Suggest the key financial drivers that most likely will cause health care organizations to merge. Provide support for your rationale.

There are a number of financial drivers that would likely cause health care organizations to merge, meaning the main motives behind why two firms would assume that they are more financially sound as compared to being alone. These kinds of firms are more concerned in innovation based offerings and are always considering ways through which they could take a leap forward. The new phenomena driving the healthcare sector has shifted from the revenue side towards effectiveness and reduction in expenses. One major component of the expenses is to do with Research and Development expenditures (Hall, B. H. 2002). As a result of mergers, the companies are able to take control of the costs and reduce the burden on resources.

Due to the fact that healthcare organizations have to keep themselves updated with all the technological advancements and innovations taking place, as a result financing needs are always arising. The financing could either be done through equity or debt. Equity would be more costly as compared to debt. Therefore, healthcare organizations would need to raise financing through various debt alternatives, one of which is bank loans. It is understood that the borrowing costs are lower for a merged firm, as compared to if the companies were not merged. Normally, a merged firm is able to borrow at lower interest rates as opposed to if the firms were to borrow separately (Grinblatt, M., & Titman, S. 2002).

2. Assuming that two (2) health care organizations have merged. Determine the evaluation criteria that a financial analyst would use to evaluate the financial performance of the organization post-merger, and identify the determinants that the analyst would use to decide whether or not the merger generated favorable financial results for the organization. Provide support for your evaluation.

The most important criteria which any financial analyst would use would be through the performance of the stock of the healthcare company after the merger. Normally if the investors have wholeheartedly embraced the merger, the post-merger price of the share would go up. However, if the investors feel that the company has made the wrong decision to be going along with the merger, the share price would show that scepticism. Furthermore, economies of scale is another criteria which is used to perform the analysis. An economies of scale is such that as a result of increase in the production level, the average costs go down (Ambrose, B. W., Highfield, M. J., & Linneman, P. 2000). Hence, if the company is able to benefit from such an element, than the merger would be understood to be feasible. Therefore, if the health costs are able to be controlled, the mergers would be justified. Moreover, it is assumed that the borrowing costs would immensely go down; hence the financial analyst would keep taps on the financial costs, whether or not it falls. If the borrowing cost does indeed fall, than ...