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Report: Competition for Hospital Transactions Leads to Upward Pressure on Acquisition Multiples

The 2011 hospital merger and acquisition market saw the highest level of deal making since 2007, which placed upward pressure on acquisition multiples, according to "The Health Care Services Acquisition Report, 18th Edition" by Irving Levin Associates.

Transactions in 2011 included 90 deals targeting 156 hospitals and 24,291 patient beds. A total of $8.2 billion was paid to finance the year's hospital M&A activity compared to $5.5 billion in 2010 representing a 50 percent increase.
Of the 90 hospital transactions, 68 deals involved the acquisition of 120 general acute-care hospitals. Ten deals involved 11 critical access hospitals, 6 deals involved 6 specialty hospitals, 4 deals involved 4 long-term acute-care hospitals and two deals involved 15 surgical hospitals.

Increases in competition for hospitals likely led to upward pressure on pricing, according to the report. Critical access hospitals received an average price to revenue multiple of 0.52x and an average price to EBITDA multiple of 8.0x. According to the report, critical access hospitals have lower multiples because the small size of these hospitals limits the ability to lower capital costs. The presence of this subset within the larger dataset partially explains why the 2011 median price to revenue multiple is greater than the average, according to the report. Without the critical access hospitals, the gap between the two would narrow. The average would rise to 0.79x and the median to 0.81x.

While competition may place upward pressure on acquisition multiples, an uncertain financial outlook for hospital reimbursement may serve as a counterbalance and help keep multiples in this range, according to the report.
Acquisition multiples for other hospitals, including acute-care, have not been released. To view the full report click here.

More Articles on Healthcare Transactions:

Required Capital Ratio Part 3: Why the Arizona Hospital Market Won't See Much Merger Activity
An Overview of Recent Challenges to Hospital Transactions: Is the FTC Really More Aggressive?
8 Recent Hospital Mergers & Acquisitions

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