In October 2016, CoxHealth signed a letter of intent to purchase Bolivar-based Citizens Memorial Healthcare in a deal valued at $120 million over seven years.
Seven months later, on May 26, the deal was called off in a news release offering little reasoning other than time. It’s not happening now.
“We have decided the timing was not right for this type of relationship,” CMH CEO Donald Babb said in the release.
Expected to close this year, upfront, Cox agreed to pay $40 million and put down $10 million toward a new foundation, according to the acquisition terms provided by the companies.
Also in the deal’s early stages, CMH would have retained its name in a co-branded format with CoxHealth, and Babb would have kept his position. CMH would have gained two seats on the CoxHealth Board of Directors. At the time it was penned, Babb said the sale wasn’t a “distress call” for CMH.
But as for what triggered the reversal, sources with both health systems aren’t saying.
Looking for indicators
In the days following the cancellation announcement, Springfield Business Journal’s inquiries have been blocked by hospital representatives.
Interview requests with CoxHealth CEO Steve Edwards were turned down by CoxHealth Media Relations Coordinator Kaitlyn McConnell, and requests to speak with Babb, the lead voice in the news release, were declined by CMH Marketing Director Tamera Heitz-Peek.
Attempts to obtain information from hospital board members were unsuccessful. CMH board Chairman David Hacker and Vice Chairman Patrick Douglas declined to answer questions, deferring to the hospital administrators.
Several CoxHealth directors could not be reached by press time, but member Rob Fulp when contacted by SBJ referred all questions to the hospital’s media representatives.
KPM CPAs PC shareholder Jim Lewis, who has worked on mergers and acquisitions for the accounting firm, said several things can happen while companies are sorting through the M&A process.
“There could have been skeletons in the closet when it came time for due diligence that could have scared off one or the other,” Lewis said. “It may have been that as they got further in, CMH wanted more and CoxHealth wanted to offer less.”
Both health care organizations have recorded recent growth trends and were honored during SBJ’s Dynamic Dozen awards for fast-growing companies. In 2016, CMH reported revenue of $435.2 million, representing a three-year growth rate of 22 percent, and CoxHealth posted $3.99 billion in 2016 revenue, for 16 percent three-year growth.
“CMH might have said, ‘We’ve done really well,’” Lewis said. “We don’t need to merge.”
Looking at the research
CoxHealth and CMH aren’t the only ones getting cold feet.
All hospital M&A activity slowed down in first-quarter 2017, according to HealthCareMandA.com. The number of hospital acquisitions nationwide decreased to 19 in the quarter, a 17 percent difference compared with fourth-quarter 2016 and 30 percent down from first-quarter 2016, which recorded 27 announced deals.
Deals have slowed in the midst of uncertainty surrounding congressional Republicans’ interests to repeal and replace the Affordable Care Act, according to the Health Care M&A report.
Lewis said other factors can be more internal.
“Sometimes, the cultures don’t mesh,” said Lewis. “That can be hugely important.
“Cox may have had certain policies and procedures that could have turned CMH away. Or, as talks moved along, some doctors could have said they were leaving. Some doctors may have not wanted to go with a bigger system.”
In the end, Lewis thinks it’s pretty simple. “My guess is that someone found something during the due diligence that was such a big deal that someone said, ‘We can’t move on with this,’” he said.