M&A activity remains strong among providers but for different reasons, Kaufman Hall reports

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M&A activity remains strong among providers but for different reasons, Kaufman Hall reports

John R. Fischer, Senior Reporter | January 13, 2020
Business Affairs
Merger and acquisition activity among providers is still going strong in the healthcare arena but with different drivers providing new motivation for them, according to a Kaufman Hall report.

The average size of sellers by annual revenue for 2019 was $278 million, remaining above recent historical levels but not at the all time high of $409 million set in 2018. The largest one to take place in 2019 was Atrium Health’s acquisition of Wake Forest Baptist Health in North Carolina, a deal which helped raise total transacted revenue for the second quarter of the year to $11.3 billion, according to Kaufman Hall.

The 2019 M&A in Review: In Pursuit of the New Bases of Completion analysis indicates that increased pressure from existing and new competitors continues to push hospitals and health systems to enter into partnerships like this. But rather than entering into them for the aggregation of assets, providers are instead seeking to transform their business models to better meet changing consumer demands and government regulations.

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“As organizations enter into new competitive dynamics, the need for new or optimized resources, know-how and services will drive more market collaboration,” said Anu Singh, managing director at Kaufman Hall, in a statement. “The transactions we're seeing, for the most part, are being driven more by strategic considerations than purely financial concerns. It's a trend we expect to see continue in 2020, and also accelerate in terms of more cross-vertical partnership activity.”

Announced transactions in total rose from 90 in 2018 to 92 in 2019, noted Singh. Partnerships between financially strong or market-defining health systems continue to prosper, with three announced transactions categorized as "megamergers", a term used to describe when the smaller partner earns more than $1 billion annually in revenue. Eleven involved smaller partners who had annual revenues between $500 million and $1 billion, while five were ones in which the smaller partner had a credit rating of A or higher.

Partnerships continue to diversify in form and participants due to increases in competition, says the report, with payers, health systems, physician practices and digital health companies looking to align with legacy healthcare delivery organizations, establish more consumer access points, develop lower-cost sites of care, and improve consumer convenience and access. Not-for-profit systems continue to lead as the acquirer in deals, accounting for 80 percent of transactions in 2019.

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