Merger and acquisition activity in healthcare is moving from the purchase of smaller sized, independent healthcare facilities to local partnerships among health systems, according to a brand-new report by health care consultancy Kaufman Hall.
In the 2nd quarter of 2021, there were 14 announced transactions, which fell below current pre-pandemic historical averages. Similar to patterns seen in the first quarter of the year, the smaller sized number of deals was offset by a more deals with seller earnings above $500 million.
In fact, average seller size by earnings was $604 million for Q2 2021– well above historical averages for the very same quarter in previous years.
Even more, Q2 2021 saw the fourth-highest total negotiated income figure compared with those of 2nd quarters in years past, totaling $8.5 billion.
As M&A turned toward regionalization, Q2 activity was concentrated in the Southeast, with Georgia alone accounting for three transactions including eight medical facilities and roughly $1.5 billion in transacted earnings.
There was one “mega merger”– that is, a merger in which the smaller sized partner or seller has average yearly incomes in excess of $1 billion– announced in this quarter: the mix of Southfield, Michigan-based Beaumont Health System and Grand Rapids, Michigan-based Spectrum Health, which will create a system with roughly $13 billion in annual operating income if the offer is authorized. Further, there were three transactions with seller earnings between $500 million and $1 billion.
Other local partnerships revealed this quarter consist of Meridian, Mississippi-based Rush Health Systems planing to combine with New Orleans-based Ochsner Health, and Atlanta-based Piedmont Healthcare preparing to obtain four Georgia medical facilities from Nashville, Tennessee-based HCA Healthcare.
” For health systems, regionalization strategies typically focus on structure services, abilities and alternative websites within a defined location– a capability that showed especially crucial for many communities at the height of the Covid-19 pandemic,” stated Anu Singh, managing director and leader of the partnerships, acquisitions and mergers practice for Kaufman Hall, in an email. “A robust local market presence can also assist health systems use the scale needed to partner with health insurance and employees on population health initiatives.”
In addition to scale, regionalization offers systems with local understanding, which is vital in healthcare.
Even in surrounding markets, local conditions can vary significantly, Singh said. Collaborations with well-established companies can be utilized to utilize that necessary local knowledge within a newly combined organization or brand-new endeavor.
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