Vibra Healthcare and Select Medical discuss growth strategies

Both Vibra Healthcare LLC and Select Medical Corp. are based in Lower Allen Township, Cumberland County. Both are in health care. Both have heavily transaction-dependent business models.

But from there, the storylines diverge. Vibra likes to buy and hold; Select has done its share of acquiring in the past but now generally prefers partnerships in which it manages the facilities.

"We look for hospitals that have not been managed optimally," says Brad Hollinger, chairman and CEO of Vibra, explaining that the company's specialty is coming in and bringing a facility up to its full potential.

Historically, most of the acquisitions have been an individual hospital or so, but in September Vibra finished a comparatively massive deal involving 16 hospitals. The logistics of a larger purchase may tax the legal team more than smaller purchases, but overall, size doesn't change the due diligence and purchasing processes much.

"You have to buy right. You can never operate your way out," says Hollinger.

That's why Vibra takes a really close look at prospects, assessing everything from the market to financials and projections to equipment and technology and, of course, staff. On Vibra's side, he says the biggest issue is "taxing the existing organization and having the ability and resources to integrate and digest what you have acquired.

"There certainly can be things that on its face look pretty good, but when you peel back the onion, you find elements that didn't jive that may cause you to take a step back," Hollinger says. That's relatively rare - maybe one in five prospects, he estimates - and Vibra tries to approach the process in a way that doesn't end in deals abandoned after a letter of intent has been executed.

That said, some factors are beyond Vibra's control: valuation metrics, access to capital, interest rates and - particularly now - what's coming out of Washington, D.C.

Hollinger assesses the last couple of years as having been "a reasonable buyer's market": Health care reform is making scale more important, and institutions want to harvest the value of their assets.

"When I started the company in 2004, there were probably three times the number of critical-care hospital companies that there are now," Hollinger says.

Hollinger and Select President David S. Chernow both say that, due diligence and regulations notwithstanding, the current health care environment has them seeing transactions conducted more urgently than in the past.

"The need is more acute," Chernow says, referring to potential partners, "and the timeline is typically shorter."

For Vibra, a standard deal might take six months, Hollinger says, with a larger transaction taking more like a year and a fast-tracked agreement 90 to 120 days.

For Select, more than a year is typical, Chernow says, and some deals can take two to three years.

Where acquisition means taking on everything, partnering means committing to an ongoing relationship.

"They want a partner who is really dedicated and expert in delivering services in that particular niche," Chernow says. "For example, in particular on rehab, where a hospital may have 10 different services they're providing to the community, they may not be focusing on that one. They really need an expert who lives in the post-acute world, and they're wanting them to bring their capital and expertise and focus on prioritization into the relationship."

Philosophies have to align, Chernow says, and the model requires a certain business approach.

"You have to be very nimble, you have to be flexible, you have to be amenable to working with others," Chernow says. "Not everybody has that ability to integrate the culture of the other organization and be able to handle, if you will, the marriage that does occur. It's really part of the culture of our company."

Carolyn N. Curnane, Select's vice president of corporate communications, said major partnerships the company has entered since 2007 include SSM Health Care of St. Louis, Baylor Health Care System of North Texas and OhioHealth of Columbus. And then there's the big local partnership with Penn State Milton S. Hershey Medical Center, a highlight of which is an expansion of the Penn State Hershey Rehabilitation Hospital that is to be finished in 2014.

"We really believe that we're stronger together, by working with a partner, than necessarily doing things on our own," Chernow says.

"You have to be very nimble, you have to be flexible, you have to be amenable to working with others."

David S. Chernow, Select Medical Corp.

By Heather Stauffer

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