Strategy a key factor in Q2 healthcare mergers and acquisitions
Two of the 11 transactions were mega mergers, yet both were strategic transactions and neither were focused on scale.
Photo: Matt Mawson/Getty Images
Mergers and acquisitions among hospitals and health systems occurred at a slower clip in the second quarter as compared to Q1, but a trend did emerge: While there were a few "mega mergers" in the quarter – transactions in which the smaller party has annual revenues of $1 billion or more – the tendency was for organizations to pursue strategy over scale.
That's according to the latest analysis from Kaufman Hall, which reported 11 announced transactions in Q2. Several large transactions in the quarter generated an average seller size by revenue that significantly exceeded year-end averages dating back to 2017.
Two of the 11 transactions were mega mergers, yet both were strategic transactions – in one case, to gain access to new tools, technologies and capital investments, and, in the other, to support one of the partner's efforts at system reconfiguration.
WHAT'S THE IMPACT?
The number of transactions in the quarter was below recent Q2 historical averages, indicating a slowing of the recent M&A growth seen since the COVID-19 pandemic. Still, the average seller size was close to $1 billion – representing 161% growth in this figure since 2017.
Because of the large average seller size, total transacted revenue for the quarter, at $10.8 billion, also remained near historic levels despite the lower number of announced transactions.
Three of the 11 transactions involved religiously affiliated acquirers, two involved academic or university-affiliated acquirers, and the remaining six involved other nonprofit health system acquirers. For the first time since Kaufman Hall has been tracking the data, there were no for-profit health system acquirers in Q2, except for real estate-only transactions. This continues a trend of low activity among for-profit entities.
With the reduced emphasis on scale, other trends took shape. One is the pursuit of intellectual capital and new or complementary capabilities through a strategic partnership, often involving an innovative partnership model. Another trend is the focus of large regional or national systems on market reorganization and strategic realignment of their system portfolios. And a third trend is the development of networks involving academic health systems and community hospital partners to sustain and enhance access to care.
The UAB Health System's acquisition of Ascension St. Vincent's central Alabama hospitals and sites of care continues another trend Kaufman Hall has been monitoring: the growth of regional care networks centered on an academic health system.
According to the firm, partnerships with community-based health systems can help academic health systems relieve occupancy pressures at their flagship campuses, and also expand opportunities for residency programs, clinical research programs, and patient access to tertiary and quaternary services.
"But there is another significant function of academic health systems that is often overlooked," analysts wrote. "Many of them serve as safety-net facilities for their communities, preserving access to care for populations that would be otherwise underserved."
In announcing its planned acquisition of the Ascension St. Vincent's facilities – which have been in alliance with UAB Health System since 2020 – UAB noted that while hospitals are closing across the country, it remains committed to strengthening hospitals in its community.
Its acquisition of the Ascension St. Vincent's facilities, which will be accompanied by investments in their clinical services and infrastructure, will "ensure that [the] community retains access to sustainable, high-quality healthcare" well into the future.
THE LARGER TREND
The pressures to transform healthcare delivery systems are being met with competing pressures from the federal antitrust regulatory agencies, which have taken a more aggressive stance against healthcare M&A activity, said Kaufman Hall.
But as the focus of transactions moves from scale to strategy, the value proposition for new partnership models is intensifying.
"Transformation of the current healthcare system is a given; the models that will enable that transformation and bring greater value to patients and communities are now taking shape," analysts wrote.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
