Hospital and health system mega-mergers took the spotlight in the second quarter as the number of mergers and acquisitions dropped year-over-year while revenues involved in those deals hit record levels.
The sector saw 13 announced deals, down from 14 in the second quarters of both 2021 and 2020 and a seven-year high of 31 in 2017, according to the advisory firm Kaufman Hall’s
The transactions, however, hit a historic high for the second quarter by revenues, reaching $19.2 billion compared to $8.8 billion in 2021, $12 billion in 2020 and the previous high of $12.6 billion in 2017.
Illinois-based Advocate Aurora Health and North Carolina-based Atrium Health’s
The merger would create the fifth largest not-for-profit health system by revenues nationally, with the system operating 67 hospitals across Illinois, Wisconsin, North Carolina, South Carolina, Georgia and Alabama.
The board of each system has signed off on the merger but it is subject to local and federal regulatory approval and faces heightened antitrust scrutiny over competitive practices that the
The second mega-merger where revenues of the smaller party exceeded $1 billion was the April announcement from Trinity Health and CommonSpirit Health that Michigan-based Trinity would acquire the assets of Iowa-based MercyOne.
The activity also included two transactions where the smaller party or seller had annual revenues in excess of $500 million — Bellin Health System/Gundersen Health System and George Washington University Hospital/Universal Health Services.
“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 said. “We expect continued activity in this space, but believe that the emphasis on transformative combinations, strategic rationale, and heightened selectivity will only grow.”
In three of the 13 announced Q2 transactions, the acquirer was a for-profit health system. In one transaction, there was an academic/university-affiliated acquirer and there was a religiously affiliated acquirer in one transaction. Other not-for-profit health systems were the acquirer in the remaining eight transactions.
The
Other trends also remain amplified as the sector has seen shifting strategies since the start of the COVID-19 pandemic and its persistent wounds on operations and margins. “Recent partnerships around the provision of skilled nursing and long-term care provide an example of a new phase of healthcare partnerships with hospitals and health systems seeking transactions that offer consumers access to new services or enhance the delivery of services that require specialized skillsets,” Kaufman Hall said.
Ponder & Co. in its quarterly M&A activity report also noted an overall higher level of revenues in the transactions. “Contrasting with the prior quarter’s volume that was predominantly comprised of hospitals with annual revenues less than $250 million, more than one-half of Q2 2022 announced volume involved targets with more than $250 million in revenue,” Ponder wrote.
Ponder also included in its mega-merger list the unwinding of AMITA Health in the Chicago area. In April, the Missouri-based Ascension and Florida-based AdventHealth said they were scrapping their joint operating agreement established October 2021. The joint operating company was initially founded in 2015.
Ponder sees a myriad of factors driving strategic decisions on mergers, acquisitions, and affiliations going forward that include residual impacts of the pandemic that pose a persistent drag on some services, labor shortages, and inflationary pressures that are driving up the expense side of the balance sheet, heightened regulatory scrutiny, and the impact of challenging first-half financial results.
“However, in the end, health systems need to generate additional revenue growth to withstand cost increases and coming reimbursement pressures and must also fortify their regional relevance so despite the headwinds outlined, M&A and strategic options will be a key consideration for virtually all health systems in 2022 and 2023,” Ponder said.
