Here’s what CEOs should keep an eye on when it comes to hospital and health system transactions.
The second quarter saw a dip in hospital dealmaking following a robust start to the year, according to a report by Kaufman Hall.
Though the 11 transactions announced in Q2 represented the lowest figure for the quarter since before 2017, the deals that were made focused on strategic access to capital investments and realignment over scale.
Two of the 11 transactions were considered “mega mergers,” featuring smaller parties that had annual revenues of $1 billion or more. The average seller size for the quarter was near $1 billion, which was growth of 161% over year-end seller size averages since 2017.
While the total transacted revenue for the quarter of $10.8 billion fell short of the previous two Q2s, it remained around past years’ marks.
The 11 deals consisted of three involving religiously affiliated acquiring entities, two involving academic or university-affiliated buyers, and six involving other nonprofit health systems. This was the first time since Kaufman Hall tracked this data that there were no for-profit health system buyers in the second quarter, which followed just a single deal made by a for-profit acquirer in the first quarter of the year.
Here are three M&A trends for CEOs to monitor from the report:
Pursuit of intellectual capital
Risant Health’s addition of Cone Health to its value-based care network that already included Geisinger Health was one of the two mega mergers for the quarter and indicative of a new approach in hospital M&A.
The blueprint by Kaiser Permanente’s subsidiary reflects a model “in which intellectual capital is as—if not more—important than traditional capital,” Kaufman Hall wrote.
By allowing partners the ability to launch new services and products through its systems, Risant is an appealing buyer to operators seeking operational flexibility and financial stability.
Market reorganization and system realignment
The second mega merger of the quarter saw BayCare buy out the interest of Trinity Health to end the joint operating agreement.
The deal “illustrates an ongoing trend in which large regional and national health systems, both for-profit and not-for-profit, are working to realign their systems to focus on markets with significant growth potential, with divestitures in some markets supporting investments and acquisitions in other markets. In turn, these divestitures enable the growth of regional markets,” Kaufman Hall wrote.
Academic health systems expanding regional care networks
Meanwhile, UAB Health System’s purchase of Ascension’s central Alabama hospitals also demonstrates another trend.
Academic health systems are focusing on partnerships with community-based health systems to alleviate occupancy constraints at their flagship campuses and improve patient access, along with creating more opportunities for residency programs and clinical research programs, Kaufman Hall noted.
As hospitals and health systems explore new ways to achieve transformation, these partnerships models are expected to be at the forefront of dealmaking.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
Kaufman Hall’s M&A Quarterly Activity Report revealed that despite only 11 deals taking place in the second quarter, the total transacted revenue was in line with past years thanks to two major acquisitions.
The transactions showed a shift in organizations prioritizing intellectual capital over traditional capital, as well as the importance of market realignment and expansions of regional care networks.