Hospital mergers and acquisitions dropped in the first quarter as the economic and political climate changed, according to Kaufman Hall’s “M&A Quarterly Activity Report: Q1 2025.”
There were five transactions in the first quarter and no mega-mergers where the smaller party had $1 billion revenue or more. Comparatively, the first quarter of 2024 had 20 transactions and the first quarter of 2020 had 29.
“Hospital and health system merger and acquisition activity in Q1 2025 reflected the overall market volatility and economic uncertainty surrounding tariffs and potential policy changes from the new administration, affecting healthcare with a chill on decision-making,” according to the Kaufman Hall report. “This low level of activity reflected broader malaise in M&A markets across industries, both globally and in the U.S.”
Five things to know:
- Four of the five transactions included a distressed hospital, and 60% of the transactions included a divestiture or portfolio repositioning.
- The average deal size has dropped significantly as well, from $559 million in the first quarter of 2024 to $279 million in the most recent quarter. Average deal size for the first quarter hit a high in 2022 of $852 million.
- The total first quarter transacted revenue was $1.4 billion, the lowest point in the last seven years. In the first quarter of 2024, the total transacted revenue was $12 billion, and $12.4 billion the year prior.
- The breakdown of acquirers was:
-One for-profit company
-One nonprofit arm of a for-profit company
-One independent nonprofit
-One governmental nonprofit
-One academic health system - Strategic partnerships continued to emerge, including one between UNC Health and Duke Health in North Carolina for a children’s hospital. There may be more partnerships between hospitals and health systems in the future to co-manage or co-own facilities.
“Regardless of the current economic and political environment, hospitals and health systems must maintain their focus on what needs to be done to encourage their long-term growth and sustainability,” the report notes.
The future
Kaufman Hall’s leaders expect transactions to persist, especially for struggling hospitals where acquisitions are “essential to their survival.” But the firm also noted challenges for hospital leaders to develop a growth strategy amid economic and political uncertainty, and volatile financial performance.
“The uncertainty felt today is reminiscent of the uncertainty that surrounded healthcare organizations at the height of the COVID pandemic, when M&A activity also slumped. The climb out of that slowdown showed that the appetite for M&A activity remains; revival of activity in 2025 will likely be dependent on a restoration of some certainty around the nation’s economic direction and financial stability of the healthcare sector,” according to the report.
