Modest Slowdown in Hospital M&A Activity in Third Quarter
Despite the drop-off in the volume of deals, total revenue transacted through the third quarter of 2018 was $10.7 billion, the report states.
CHICAGO—What has been a significant increase in merger and acquisition volume in the hospital and health care sectors is showing some signs of slowing down, according to an analysis released today by locally-based Kaufman, Hall & Associates, LLC.
A total of 18 transactions were recorded in the third quarter of 2018, a 38% decrease over the 29 deals recorded in the third quarter of 2017. Year-to-date transaction totals reached 68 through the third quarter of 2018, compared to 87 deals through the third quarter of 2017. Despite the drop-off in the volume of deals, total revenue transacted through the third quarter of 2018 was $10.7 billion, the report states.
“While there is a moderate drop in M&A activity, we are continuing to see providers engage in larger, more strategic partnerships needed to develop, access, or combine the resources required to transform legacy business models and support innovation,” says Anu Singh, managing director at Kaufman Hall. “We expect to continue to see large-scale organizations pursue partnerships because they realize that while their ability to remain independent may exist, the path to long-term relevance and growth may require broader partnerships and collaborations.”
Texas is the most active state thus far in 2018, with five announced M&A transactions, including two announced transactions in the third quarter. In 2017, Texas ranked third overall in terms of merger and acquisition activity with eight deals. Three transactions announced in the third quarter of 2018 involved religious-affiliated organizations acting as acquirers, and three involved a religious-affiliated target. Two transactions involved academic health systems acquiring other organizations. Three deals involved less than fully integrated transactions: a management services agreement, one affiliation, and one real estate transaction.
The signature deal driving 2018 M&A revenue is the $7.2 billion for-profit LifePoint Health and RCCH HealthCare Partners merger announced in July. If the deal closes, the new entity will include 84 non-urban hospitals across 30 states along with regional health systems, physician practices, and ambulatory care and post-acute sites. Another significant partnership was announced earlier this month when Memorial Hermann Health System, Houston’s largest nonprofit hospital system, and Baylor Scott & White Health, the largest nonprofit system in Dallas, announced their intent to merge.
The sell-off of for-profit assets also continued in the third quarter, as Tenet Healthcare announced its intention to sell Louis A. Weiss Memorial Hospital, Westlake Hospital, and West Suburban Medical Center to an investment firm. The move eliminates Tenet’s Chicago-area footprint, allowing the firm to focus on regions where it has a larger presence and greater market share, the report notes Tenet initiated its departure from the Chicago market with the October 2017 announcement of the sale of MacNeal Hospital to Loyola Medicine. In July 2018, Community Health Systems, which divested 30 hospitals in 2017, announced its plans to sell two of its Arkansas hospitals, comprising the Sparks Health System, to nonprofit Baptist Health in Little Rock.
Alternative transaction models also are emerging, such as the cooperative approach announced by Evangelical Community Hospital and Geisinger on Oct. 1, which allows Evangelical to remain an independent community hospital. Evangelical and Geisinger will invest $265 million over the next five years in their shared service areas, and Evangelical will benefit from Geisinger’s IT innovations and improved status in the system’s health plan.