“M&A is not speed dating,” expert says as Beaumont seeks new partner

Beaumont Health has sought out a third merger partner in two years, with the Southfield, Mich.-based health systems looking to link up with its fellow not-for-profit Michigan-based system Spectrum Health.

The deal would create a $12 billion healthcare company operating 22 hospitals and 305 outpatient locations with more than 64,000 employees and 7,500 independent physicians. Beaumont turned to Spectrum after deals with Summa Health and Advocate Aurora Health fell through.

“M&A is not supposed to be speed dating,” said Joe Lupica, chairman of Newpoint Healthcare Advisors. Still, deals can be dropped for several good reasons, and a succession of failed mergers doesn’t mean that trend will continue, he added.

Priority Health, Spectrum’s integrated insurer, would become part of the new system. The potential to expand the health plan, which generated more than $5 billion in revenue last year, was a major selling point, executives told Crain’s Detroit Business.

The new system would be run by a 16-member board of directors split across the organizations, including three physicians. Beaumont CEO John Fox would help the transition and then make way for Spectrum CEO Tina Freese Decker.

Some influential physician leaders at Beaumont wrote a no-confidence petition regarding Fox and Chief Medical Officer Dr. David Wood, Jr. not long after Beaumont and Advocate Aurora proposed their merger last year.

The petition warned that Beaumont would lose control of its hospitals and the “changes instituted by the current leadership have been done to increase the financial status of the organization.”

In response, Fox and Wood told Crain’s Detroit Business that they would meet with hospital medical staff to better understand their concerns.

In addition, the Michigan Attorney General’s office planned to investigate the transaction, said Beth Vessel, a partner at Waller Lansden Dortch & Davis who focuses on antitrust issues.

“A majority of doctors also responded negatively to the transaction in a survey, although the parties also indicated that the pandemic had hindered face-to-face interactions among the parties,” she said.

As for the Beaumont-Spectrum deal, east and west Michigan “are worlds apart with very different cultures,” someone familiar with the deal said.

Beaumont said in a statement that the organizations share missions, visions and values and that they will “build on complementary clinical strengths, expand access to more Michiganders and make important investments to improve the health and wellbeing of people across the state.”

Merger and acquisition experts reflected on several other Beaumont ventures over the past several years:

Beaumont/Summa

• Beaumont signed a letter of intent in late 2019 to acquire Akron, Ohio-based Summa Health. The regional combination would have added four hospitals and a health plan to Beaumont’s eight hospitals, creating a $6.1 billion system. The COVID-19 pandemic first delayed and ultimately dismantled their plans, executives said. “You had a disaster that no one ever thought would trigger a material adverse change happen,” someone close to the matter said.

Beaumont/Henry Ford

• Beaumont and Detroit’s Henry Ford Health System called off their proposed merger in 2013, citing “cultural differences.” What was coined as a “merger of equals” that would’ve created a $6.4 billion system succumbed to “two very different perspectives had emerged for the new organization,” executives said. “That was never going to happen because their cultures were radically different,” said Kevin Holloran, senior director at Fitch Ratings. “Henry Ford was a closed medical staff model with its own insurance plan and Beaumont had been known more as a group of hospitals for doctors that operated somewhat independently.”

Beaumont/Oakwood/Botsford

• Beaumont completed a deal the following year with Dearborn, Mich.-based Oakwood Healthcare Inc. and Farmington Hills, Mich.-based Botsford Hospital. Physician staffing and practice models between Beaumont, Oakwood and Botsford were more similar than the employed staffing model of the Henry Ford Medical Group, experts said.

Commercial real estate venture

• Beaumont built a 117,000-square-foot shopping center adjacent to its Royal Oak hospital campus in 2019 to diversify its revenue stream. The $32.8 million commercial real estate project, which includes a hotel, restaurants, a grocery store and urgent care center, aims fill a need for the around 13,000 people who visit Beaumont’s Royal Oak campus every day, executives said.

As far as the proposed Beaumont-Spectrum marriage, Alex Calderone, a turnaround expert at Calderone Advisory Group, told Crain’s Detroit Business that Beaumont’s leadership has given up on trying to correct its operations and culture on its own.

“I don’t know how they can say a lot of patients that are right now going to either Beaumont or Spectrum are suddenly going to get better care because they merged the two entities,” Calderone said. “Judging this merger in the court of public opinion is hard to do but the easiest answer to this merger is cost. Don’t ever waste a crisis. And in the aftermath of the pandemic, both institutions suffered.”

Dustin Walsh of Crain’s Detroit Business contributed to this report.