The healthcare industry in the United States has seems to have evolved into a very competitive area by through hospital consolidation by means of merger and acquisition (Blaire, Durrance, & Sokol, 2016). Some firms take interest in the synergies for efficiencies in lowering prices, increasing services, improving quality, or introducing innovations. However, there are other firms that turn to consolidation primarily for monopoly power. Regardless to the motivation of the consolidation, mergers and acquisitions do offer doors of opportunity in the hospital sector along with a host of challenges for healthcare management (Boyd, 2016).
Firms have three main ways of combining with other companies: merger, acquisition of the target company’s stock, and acquisition of the target company’s assets without its corporate shell (Cleverley, Cleverley, & Song, 2012). A merger takes place when two or more companies combine together, with one continuing as the legal entity while the target companies no longer exist. The continuing company will also assume all assets and liabilities of the target companies. In an acquisition of assets deal, a number of scenarios can play out with the
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Leveraged buyouts are when a company primarily uses their own debt to purchase all the public stock interest of another company or part of the company. The transaction is referred to a management buyout if the deal is conducted by management. The deal is called going private if the shares are solely owned by the acquiring company or management with no third-party investors. Acquisitions by management have become common in this day and age. Dutta (2011) believes that when management has a large enough stake and ownership in a company, they happen to be more cautious in their decision making so that decisions are more favorable in the eyes of the existing