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Hospital M&A takes new shape post-pandemic

Fifteen hospital and health system transactions were announced in the first quarter of 2023, with a new type of post-pandemic activity taking shape, according to Kaufman Hall. 

The healthcare consulting firm reviewed the quarter's hospital and health system transactions in its latest M&A Quarterly Activity Report, finding the 15 announced transactions from Q1 2023 was just below the post-pandemic high of the 17 transactions announced in Q4 2022. 

"As health systems adapt to a new environment of razor-thin — and for many organizations, negative — operating margins, we anticipate that this new wave of mergers will continue," the firm noted. 

Here are six key takeaways from the report: 

1. A new flavor of hospital M&A is emerging post-pandemic, in which mid-sized regional health systems seek partners while they remain in a position of financial strength. Some are seeking to balance their desire to influence local healthcare delivery while gaining the scale and capabilities of larger systems. "This trend is reflected in the rapidly increasing size of the smaller party in M&A transactions over the past few years and the number of transactions where the smaller party has between $250 million and $750 million in annual revenues," Kaufman Hall noted. 

2. The average size of the seller in transactions announced in Q1, as measured in annual revenues, was $827 million. That's just below the historic 2022 year-end average of $852 million. 

3. Additionally, large, regional health systems are increasingly moving beyond traditional geographic constraints to find partners. In Q1, Albuquerque-based Presbyterian Healthcare Services and Des Moines, Iowa-based UnityPoint Health announced plans to merge, becoming the latest systems to pursue a cross-regional partnership. This type of activity is expected to continue and even intensify.

4. In the for-profit sector, the trend of portfolio realignment continued in Q1, with for-profit sellers rebalancing their holdings to concentrate on core assets and markets. Steward Health Care announced the sale of its Utah care sites, Community Health Systems moved to sell four hospitals in three states, and Tenet sold its stake in San Ramon (Calif.) Regional Medical Center. 

5. Total transacted revenue for Q1 neared historic highs at $12.4 billion, just below the Q1 record of $12.7 billion set in 2018.

6. In 14 of the 15 announced Q1 transactions, the acquirer was a nonprofit health system. Of them, three were academic or affiliated with a university and five were religiously affiliated.


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