While the pace of merger and acquisition deals among hospitals and health systems remains low compared to pre-pandemic years, “historic” total transacted revenue during the second quarter of 2022 far exceeded that of any prior year’s second quarter, according to Kaufman Hall’s latest industry report.
The quarter’s $19.2 billion total more than doubled the $8.8 billion in transacted revenue recorded by the firm this time last year.
Similarly, the average size of the smaller entity in a hospital and health system transaction skyrocketed to $1.48 billion from the second quarter of 2021’s $619 million, which was already hundreds of millions higher than in prior years.
These numbers were primarily driven by a major outlier: the $27 billion megamerger of Advocate Aurora Health and Atrium Health announced in May. The former logged just under $14.1 billion in total revenue last year while the latter checked in at $12.9 billion.
But not to be overlooked were three other announced deals involving a smaller party with more than half a billion in revenue: Trinity Health’s buyout of MercyOne (smaller party revenue of $3 billion), Bellin Health System and Gundersen Health System’s merger plan announcement (smaller party revenue of $800 million) and Universal Health Services’ minority interest buyout of GW Hospital (smaller party revenue of $600 million).
The high dollar totals contrast the persistent dip in dealmaking frequency that began alongside the pandemic, Kaufman Hall wrote.
Thirteen merger and acquisition deals were announced during the most recent quarter, “consistent” with the 14 recorded during 2020 and 2021’s equivalent quarters. Deal volume had run as high as 31 during the second quarter of 2017, per the report.
Nonprofit systems were the acquirer in 10 of the quarter’s 13 deals, one of which was university affiliated and another religiously affiliated. The remaining three acquisitions were by for-profit systems.
“The full return this quarter to the trend of fewer but larger hospital and health system transactions signals what may be a long-term shift in hospital and health system transactions,” Kaufman Hall wrote in its report. “We expect continued activity in this space, but believe that the emphasis on transformative combinations, strategic rationale and heightened selectivity will only grow. At the same time, as noted in our 2021 year-end report, ‘we anticipate a greater willingness to engage with specialty providers to complement the traditional inpatient/outpatient services that have been the core offering of hospitals and health systems.’”
Outside of hospital deals, Kaufman Hall took time to highlight two deals in which health systems sold off their post-acute skilled care assets but committed to partnerships with the acquiring entity to continue providing those services to their patients.
Both deals were fueled by upheaval in the long-term care industry—workforce struggles, shifting consumer preference and recent years’ reimbursement model changes—that led the systems to “reassess strategic options for providing post-acute skilled care,” the analysts wrote.
Source: https://www.fiercehealthcare.com/providers/outlier-megadeal-brings-q2-hospital-ma-average-total-deal-size-historic-heights