May 28, 2014
There are a number of financial drivers that would likely cause health care organizations to merge, meaning the main motives behind why two firms would assume that they are more financially sound as compared to being alone. These kinds of firms are more concerned in innovation based offerings and are always considering ways through which they could take a leap forward. The new phenomena driving the healthcare sector has shifted from the revenue side towards effectiveness and reduction in expenses. One major component of the expenses is to do with Research and Development expenditures (Hall, B. ...view middle of the document...
The new phenomena driving the healthcare sector has shifted from the revenue side towards effectiveness and reduction in expenses. One major component of the expenses is to do with Research and Development expenditures (Hall, B. H. 2002). As a result of mergers, the companies are able to take control of the costs and reduce the burden on resources.
Due to the fact that healthcare organizations have to keep themselves updated with all the technological advancements and innovations taking place, as a result financing needs are always arising. The financing could either be done through equity or debt. Equity would be more costly as compared to debt. Therefore, healthcare organizations would need to rise financing through various debt alternatives, one of which is bank loans. It is understood that the borrowing costs are lower for a merged firm, as compared to if the companies were not merged. Normally, a merged firm is able to borrow at lower interest rates as opposed to if the firms were to borrow separately (Grinblatt, M., & Titman, S. 2002).