Hospital M&A: Fewer deals but higher value
Average seller size by revenue year-to-date was $659 million, more than double the average of $329 million over the past six years.
Hospital mergers and acquisitions in the third quarter of 2021 largely continued the second-quarter pattern. Although the number of transactions remained lower than historic levels before the pandemic, there was a notably high level of total transacted revenue and average seller size by revenue.
Seven transactions involving 20 hospitals were announced in the third quarter, according to the latest report from KaufmanHall. Total transacted revenue for the quarter was $5.2 billion, which brought total transacted revenue for the year to $22.4 billion. Average seller size by revenue year-to-date was $659 million, more than double the average of $329 million over the past six years. Two of the most significant deals in the quarter were the planned merger of Utah-based Intermountain Healthcare and Colorado-based SCL Health, and HCA’s planned acquisition of five hospitals in Utah from Steward Health Care.
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Several factors are driving this year’s trend of a smaller number of transactions but a higher level of large and mega-merger transactions:
- Fewer independent hospitals. The number of unaffiliated, independent community hospitals is decreasing. The most recent data from the American Hospital Association indicate that 67% of the 5,141 community hospitals already are part of a system.
- Emphasis on strategic partnerships. Hospitals and health systems have become much more strategic and selective in identifying potential partners. Both the process of completing a merger and the work of integration that follows the transaction are heavy lifts, so organizations are focused on transactions that have a strong strategic rationale to make the effort worthwhile.
- Desire for transformative impact. Health systems increasingly seek a transformative impact from merger and acquisition activity — not just the acquisition of another facility but the addition of new capabilities or access to new markets.
Analysts expect more of the same as the economic return to normal appears to be taking longer than expected.
“Much can change in three months,” analysts said. “At the end of the second quarter, with dramatically lower COVID-19 case rates across the country, we hoped that health systems would enjoy a relatively uninterrupted period of stabilization and normalization. Then the Delta variant of the coronavirus emerged, and in many states, hospitals have again been on the front lines in battling the pandemic.
“The path toward normalization will be longer, but we see continued activity in reframing strategies and partnerships that will enable health systems to focus on their own core strengths while expanding the services they offer to their communities.”
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