Four mega mergers helped increase M&A in Q1

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The first quarter of 2024 saw a significant uptick in merger and acquisition activity, with 20 announced transactions – which, according to Kaufman Hall, represents the strongest first quarter since Q1 2020, just before the start of the COVID-19 pandemic.

Of the 20 announced transactions, four were mega mergers (defined as the smaller party having annual revenues of $1 billion or more). That's one of the highest numbers of mega mergers in the firm's memory, and has contributed to average seller size and total transacted revenue figures that remain at historically high levels.

The mega merger count includes Tenet Health's sale of four California hospitals to UCI Health, which Tenet notes "generated revenues of approximately $1 billion" in 2023, right at the mega merger threshold.

In the other three mega mergers, Northwell Health acquired Connecticut-based Nuvance Health; University of Minnesota acquired M Health Fairview University of Minnesota Medical Center; and HATCo acquired Summa Health System. Kaufman Hall did not list the transaction amounts for those mergers. 

Academic health systems also had an active quarter, acting as the acquirer (or larger party) in six of the 20 transactions.

WHAT'S THE IMPACT?

According to Kaufman Hall, the number of transactions logged during the quarter are part of a slow but steady climb out of the slowdown in activity seen during the pandemic, significantly exceeding the number of transactions announced in Q1 of 2021, 2022, and 2023.

The average size of the seller (or smaller party) remained at a high level of $598 million, exceeding the year-end averages for every year since 2017 except for 2021 and 2022.

Total transacted revenue for the quarter also remained near historically high levels of $12 billion, reflecting the influence of both the four mega mergers and the higher number of transactions for the quarter. The Q1 2024 total was the third highest total since 2017.

There was one transaction with a for-profit health system acquirer in the quarter. Of the remaining 19 transactions, academic or university-affiliated health systems were the acquirer in six, religiously affiliated health systems were the acquirer in two, governmental health systems were the acquirer in two, and other nonprofit health systems were the acquirer in nine.

The quarter continued the trend of cross-market transactions – notably the announcement that Connecticut-based Nuvance Health plans to join New York-based Northwell Health, which would create a combined system with a network of 14,500 providers at more than 1,000 sites of care, including 28 hospitals.

Although the two health systems are in separate markets, they operate in nearby regional geographies. The transaction reflects a trend toward regional market development, said Kaufman Hall, which enables systems to diversify revenue sources and bring complementary resources and capabilities to a broader regional footprint.

There was also movement toward partnerships by independent community health systems, including those that have historically maintained strong financial health. Two examples of such transactions in Q1 2024 included St. Peter's Healthcare System's announcement of its plan to join Atlantic Health System and Evangelical Community Hospital's announced plan to join WellSpan Health. According to the firm, market headwinds are reducing the margin of error for smaller organizations.

THE LARGER TREND

While there are signs that healthcare industry performance may be stabilizing, a recent analysis in Kaufman Hall's latest Flash Report showed 40% of American hospitals continued to lose money into 2024.

Because of that, stability may not be enough to ensure long-term stability, the firm said. Continued financial headwinds are expected to remain a significant factor in merger and acquisition activity throughout the year.
 

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