In M&A deals, seller size by revenue is significantly above historical norms
Four "mega merger" transactions were announced in the quarter.
Photo: Matt Mawson/Getty Images
Healthcare mergers and acquisitions activity grew significantly in the third quarter this year despite ongoing financial pressures in the industry, according to Kaufman Hall's latest M&A Quarterly Activity Report.
Twenty-seven hospital and health system deals were announced during Q3, the highest level of activity so far this year.
One of the 11 transactions related to the Steward bankruptcy -- Health Care Systems of America's assumption of operations at eight hospitals in Florida, Louisiana, and Texas -- was among the four "mega merger" transactions announced in Q3 (transactions in which the annual revenue of the seller, or smaller party, exceeds $1 billion).
The other three were Florida-based Orlando Health's announced acquisition of Alabama-based Brookwood Baptist Health from Tenet; Prime Healthcare's planned acquisition of eight Ascension-owned hospitals in Illinois; and the intended combination of South Dakota-based Sanford Health and Wisconsin-based Marshfield Clinic Health System.
WHAT'S THE IMPACT?
Activity related to the Steward Health Care bankruptcy drove Q3 2024 announced transactions to the highest level seen since Q3 2017. Even with the 11 Steward transactions excluded, the 16 remaining announced transactions are similar to levels seen in 2018, 2020, and 2023, data showed.
Although there were four mega merger transactions in Q3 2024, the high overall transaction volume brought down the average size of the seller (or smaller party) by annual revenue from an historic high of $984 million in Q2 2024 to $492 million in Q3, which Kaufman Hall said is consistent with recent year-end averages.
At the same time, high transaction volume drove up total Q3 transacted revenue to $13.3 billion, the highest Q3 total in eight years.
Seven of the 27 announced transactions involved for-profit acquirers, three involved academic acquirers, three involved religiously affiliated acquires, and two involved governmental acquirers. The remaining 12 transactions involved other not-for-profit acquirers.
Notwithstanding the financial difficulties facing Steward facilities in the wake of the parent company's bankruptcy, attractive assets are finding buyers in established, regional not-for-profit health systems that see opportunities for expansion and growth, said Kaufman Hall.
These buyers include CHRISTUS Health in Texas; Orlando Health in Florida; Honor Health in Arizona; and Lifespan, Lawrence General Hospital, and Boston Medical Center in Massachusetts.
Also according to the report, large, national health systems continued their portfolio realignment efforts in Q3. Community Health Systems (CHS) is completely exiting the Pennsylvania market with its announced plan to sell three-hospital system Commonwealth Health to recently formed not-for-profit WoodBridge Healthcare. The divestiture is part of CHS's plan to raise $1 billion to pay down its debt.
THE LARGER TREND
The report highlighted the high high level of financially struggling organizations that are having difficulty finding a partner.
The Steward Health Care bankruptcy, it said, raised the prospect of hospital closures, and state governments in Arizona and Massachusetts expressed gratitude that established health systems in their communities were willing to take on hospitals that needed a partner to survive.
"There is a much larger universe of struggling hospitals beyond Steward, as illustrated by other Q3 transactions," authors said. "In most instances, approving a combination -- even with a hospital or health system in the same market -- is likely to be a better solution than closure.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
