Already, we can see health organizations adopting shorter-term deal tactics to weather the storm. In the long term, we expect to see more fundamental shifts in deal strategy, valuation and liquidity. If there is a prolonged downturn due to the current crisis, executives may be bolder in their ambitions and look to acquire those assets that will help them accelerate into an upturn faster. Declines in valuations will also spur M&A activity.
For now, health executives are focused on addressing the immediate impact of the crisis
While the full extent of the impact on the global economy remains unclear, all respondents agree that the pandemic will have a negative impact on global growth, at least in the near term. Hospitals and health systems have historically focused on building agility and resilience, and they have been well-prepared to respond to and sustain operations through crises such as natural disasters. However, the unique nature of the current situation has strained resources and challenged even the best-laid plans.
For now, many health organizations remain in survival mode, with some of the smaller hospitals or those with the slimmest margins and cash reserves potentially restructuring.
Next, health organizations will need to re-evaluate and rebalance
As hospitals and health systems restart operations and recover, health systems will be looking at their care delivery models and at opportunities to make strategic investments to streamline and improve patient care.
Even before normalcy resumes, health organizations are expected to refocus on more conventional challenges (e.g., new products and services, geographic expansion, and partnerships and technology adoption) as they consider how to recover and recalibrate their business models to regain financial footing. Eighty percent of health executives say they are conducting more frequent reviews than they did three years ago, while 77% say they have moved to a more continuous rebalancing of their business portfolios.
For health organizations, portfolio reviews should strengthen capital allocation and cash flow processes. An always-on strategic and portfolio review process will allow companies to identify areas of growth at the earliest opportunity and counterbalance losses incurred because of the pandemic. It will also help them prepare to divest and reinvest, a classic trend during a crisis and recovery that is also expected post-pandemic.