Merger and acquisition revenue in the last two quarters has remained high at $8.5 billion, with a major shift away from acquisitions of smaller, independent hospitals and a focus on regional partnerships, according to a report from Kaufman Hall.
“For-profit health systems are maintaining their focus on building strong regional markets and divesting hospitals outside of their core business regions. A significant portion of Q2 activity was concentrated in the southeast with Georgia alone accounting for three transactions involving with hospitals and approximately $1.5 billion in transacted revenue,” according to the report.
Total revenue in the first and second quarter of 2021 came to a total of around $17.2 billion from 27 total transactions.
“Total transacted revenue in 2021 is the second-highest in recent years, despite significantly fewer transactions,” according to the report. Conversely, in 2020, revenue for the same combined quarters was roughly $17 billion over almost double – 43 transactions.
In the second quarter, merger and acquisition activity was at a historical low pre-pandemic with just 14 transactions. However, this was counteracted by a high number of transactions with revenues above $500 million, including a “mega-merger” announced in the second quarter of 2021 with Beaumont Health System and Spectrum Health.
Additionally, the average seller size by revenue for 2021’s second quarter was well above historical averages for the second quarter and for recent year-end averages at $604 million.
The most significant transactions in the second quarter include:
- Spectrum Health and Beaumont Health’s plan to form a combined system in Michigan with $13 billion in annual operating revenue;
- Tenet Healthcare’s plan to sell five hospitals in south Florida’s Miami-Dade and Broward Counties to Steward Health Care System;
- Piedmont Healthcare’s plan to acquire four Georgia hospitals from Nashville; and
- Medical University of South Carolina’s plan to buy three South Carolina hospitals from LifePoint Health in Tennesse.
The M&A trends this year see a big focus on regionalization, “with an emphasis on building depth within local markets and breadth through expansion to neighboring geographies,” according to the report.
This move toward regionalization means consolidating resources and sharing them where there isn’t a strong presence in these health care systems, which is a particularly valuable goal throughout the COVID-19 pandemic. A robust regional market will allow health systems to partner with health plans and local employers to benefit and build community-based initiatives.
“Partnerships with well-established organizations can preserve and leverage local knowledge within a newly combined organization or new venture,” according to the report.
Read more here: https://bit.ly/hc-mergers
Originally posted in ACA INternational’s Pulse Newsletter.