In M&A deals, seller size by revenue is significantly above historical norms

 In M&A deals, seller size by revenue is significantly above historical norms


Photo: Matt Mawson/Getty Images

Healthcare mergers and acquisitions activity remained steady in the third quarter this year despite ongoing financial pressures in the industry, according to Kaufman Hall’s latest M&A Quarterly Activity Report.

Nineteen hospital and health system deals were announced during Q3, representing a continuation of the consolidation trend seen throughout the year.

While deal volume stayed consistent, total transacted revenue reached $5.2 billion. The average seller size by revenue for Q3 deals was $553 million, significantly above historical norms, which Kaufman Hall said underscores the increasing size and complexity of transactions in the sector.

WHAT’S THE IMPACT?

One notable trend in Q3 was the rise in large-scale deals, driven by organizations’ need for financial stability and operational efficiency. Several of the transactions involved health systems with more than $1 billion in annual revenue, reflecting an industry focus on larger, more strategic combinations.

A key example of this is the recently announced deal between CommonSpirit Health and Essentia Health, both multibillion-dollar organizations, which the report highlighted as one of the most significant mergers of the quarter. This, according to Kaufman Hall, aligns with the broader trend observed in recent years in which health systems are merging not just for geographic expansion, but to address financial sustainability, manage rising costs and enhance care delivery in a rapidly changing healthcare landscape.

Other notable transactions included a merger between Novant Health and New Hanover Regional Medical Center, reflecting a broader trend of larger systems absorbing regional players to expand their geographic reach and service lines. And UHS acquired Roxborough Memorial Hospital, which the report said highlights the ongoing role of M&A as a solution for financially distressed institutions.

The median operating margin for hospitals remains below pre-pandemic levels, with many systems operating at a loss. The increased cost of labor, particularly in nursing and support staff, continues to erode margins. In this context, M&A offers a strategic path forward for many organizations looking to stabilize their financial positions, the report found.

An emerging trend is that health systems are increasingly looking for partners that can help them innovate in areas like value-based care, population health and digital health solutions. Several of the transactions in Q3 involved health systems with complementary strengths, particularly in areas like telehealth, ambulatory care and home health services.

For instance, Sutter Health’s acquisition of several outpatient clinics reflects a focus on ambulatory care as a means to reduce costs and improve access to care, the report claimed. Similarly, Northwell Health’s merger with an upstate New York hospital system marks a growing trend of regional expansion combined with a push for care model innovation, including value-based care.

The third quarter also saw several regional health systems expanding their footprints through acquisitions, which reflects the ongoing geographic consolidation trend. 

THE LARGER TREND

Looking ahead to the fourth quarter of 2024 and into 2025, Kaufman Hall expects healthcare M&A activity to remain robust, with more large-scale deals on the horizon. 

However, the financial pressures facing the industry could lead to a more selective approach to mergers, with organizations focusing on deals that offer clear strategic value and operational synergies.

“Health systems are increasingly pursuing scale through M&A to achieve financial stability, but also to gain access to capital, enhance care models, and invest in technology and innovation,” said Kaufman Hall managing director Anu Singh.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.



Source link

Fallon Wolken

Related post

Leave a Reply

Your email address will not be published. Required fields are marked *