Rex Burgdorfer is a managing director at Juniper Advisory, a specialized investment banking firm that focusses on nonprofit health system mergers and acquisitions. Over the last decade, Rex and the team at Juniper have advised all forms of hospital companies on business combinations. Burgdorfer sat down with us recently to discuss industry trends, his forecasts for the future, and the importance of hard work.
Tell us about how you ended up at Juniper.
I’m a Chicago native and, like many of us, strive to deliver a midwestern approach to an otherwise pretty sharp-elbowed field. I spent the early part of my career at Morgan Stanley, returned to business school at Northwestern in 2007, and joined Juniper in 2009. Juniper is a private partnership that specializes both on a product basis: strategic M&A advisory services, and industry level: the acute care nonprofit hospital sector.
Why so specialized?
Two reasons. First, just like selecting a surgeon – you want the one that does 100 operations a year, not 3. We believe we’re better at what we do by gaining experience through a large volume of like transactions. Doing so consistently and over such a long period of time, chances are our team has encountered whatever issue is present in a hospital system affiliation and has a basis of comparison for how the parties considered and solved it. Second, the hospital industry, while a large component of GDP and critically important, is still quite fragmented. The top 50 companies combined represent less than 25% market share. The largest company has only 4%. In almost all other segments the top 50 would be over 75%. So a lot of change is needed to improve the efficiency and, by in large, it is not covered or serviced very effectively by M&A advisors.
What has to change for meaningful change to occur?
We certainly don’t have a magic ball to predict the future. Most, though, believe that the underlying ownership structure of the hospital industry is one of the reasons for the ballooning cost/quality differential.
Hospitals are owned and managed by: (1) community nonprofits, (2) faith-based sponsors, (3) for-profit companies, (4) academic institutions, and (5) local Governments.
In the 1990’s most of the merger transactions were completed between regional nonprofits (1) and religious organizations (2). Most of these were driven within a narrow geography to gain clout relative to growing managed care providers. The best example that our bankers worked on was the formation of Advocate in Chicago or St. Joseph’s or Via Christi in California.
In the 2000s, a lot of acquisitions were made by for-profit companies (3) rescuing financially troubled hospitals. The best examples our team participated in were HCA/Health Midwest in Kansas City and CHS acquiring hospitals in towns like Wilkes-Barre, PA or Waukegan, IL.
Following the passage of healthcare reform this decade, the medical and economic incentives caused academic medical centers (4) and local governments (5) to be the outsized participants. Representative projects we advised on were with Santa Clara County, CA or opposite Duke in NC, Jefferson in PA, and the like. Today, the majority of our assignments continue to be on behalf of local governments (cities, counties, districts, boroughs) and academic institutions evaluating strategic alternatives
How do you measure success?
We’ve been very fortunate to: (a) build and maintain significant market share amongst M&A advisors, (b) assemble a fabulous team, and thanks to the benefit of time and persistence (c) recognize patterns. We’re uniquely collegial, have worked together for a long time, and, I’ll speak for myself, find great personal satisfaction in what we do. Recently we studied the outcomes of partnerships we worked on. It was quite rewarding to see that on most metrics, e.g., quality scores, number of specialists, number of services, outmigration, revenue, profitability, leverage, and contribution to the community improved. Our clients, many of whom are in rural areas with deteriorating demographics, are almost always the largest employer in town, driver of business activity, and whose performance is quite literally a matter of life or death.
So what else do you do?
For many years, I ate, breathed, and slept in this world. I don’t think I took a day off for the first 5 years – probably overdid it in a lot of respects looking back. In the last several years, I’ve taken an interest in the venture world and made 15 or so little investments with entrepreneurs I know. I joined the investment committee of Purple Arch Ventures and have had fun trying to identify overlaps between the issues our hospital system clients struggle with and new business creation to solve meaningful problems.
Given the chance to start again, what things would you do differently?
One of the great regrets of my life is not serving in the military. Coming out of college I was accepted and had a spot in Naval Officers Candidate school. I was comparing that path against the financial services career track and you know the direction I went. Overall, I’m an incredibly fortunate guy – healthy, employed, great family – but if I could talk with my 22-year-old self, I’d emphasize there is plenty of time to sit in an office. A few of my bosses at Morgan Stanley had served in the Marines – that would have been quite an adventure. I also saw in business school the phenomenal leadership training that the former military people had.