Hospital and health systems saw fewer merger and acquisition (M&A) deals in the third quarter but a notably high level of total transacted revenue and average seller size by revenue, continuing trends observed in the second quarter of this year, according to a new analysis reported in a release from industry consultant Kaufman Hall.
Seven transactions involving 20 hospitals were announced in the third quarter, including two “mega-mergers,” in which the smaller partner or seller has average annual revenues over $1 billion. Total transacted revenue for the quarter was $5.2 billion.
Average seller size by revenue year-to-date was $659 million, more than double the average between 2015 and 2020. Total transacted revenue for 2021 is now $22.4 billion, nearly on par with that of past years, despite only half (or even less) of the total transaction volume.
Experts say the 2021 trend toward a smaller number of transactions, but a higher level of large and mega-merger transactions, is expected to continue. Drivers include:
- Fewer independent hospitals. The number of unaffiliated, independent community hospitals is decreasing. Data indicates that 67% of community hospitals are already part of a larger system.
- Emphasis on strategic partnerships. Hospitals and health systems are becoming much more selective in the partnerships that they pursue.
- Desire for transformative impact. The purpose of M&A activity is increasingly shifting to focus on adding new capabilities or access to new markets, transcending traditional definitions of scale and market presence.
Partnership activity outside of traditional hospital and health systems transactions remains robust, with an increasing focus on payer-provider partnerships and innovative approaches to improving care delivery.
Report authors believe that the trend of high average seller size will continue into the fourth quarter as larger health systems look to partner to overcome adverse effects from the COVID-19 pandemic and seek strategic combinations that broaden their reach.