More Mega-Mergers in Q2 Drive Healthcare M&A Activity to Near-Historic Levels, Kaufman Hall Report Shows

CHICAGO, July 18, 2019 /PRNewswire/ — The total number of transactions involving hospitals and health systems dropped in the second quarter of 2019, but the size of the mergers and acquisitions (M&A) announced pushed total transacted revenue to its highest levels since 2017. Those are among the findings of the Q2 2019 M&A Activity Report from Kaufman Hall, a leading provider of enterprise performance management software, and data and management consulting services, including a vibrant M&A practice.

Although the volume of announced transactions dropped to 19 in Q2 from 27 in Q1 2019, quarterly volume was in line with recent trends, including the 21 transactions announced in Q2 2018. The year-to-date volume of transactions also is tracking with 2018, with 46 announced transactions in the first half of this year versus 50 in the first half of 2018.

Where Q2 2019 deviates significantly is in total transacted revenue, which was $11.3 billion. That figure is significantly above the norm for a single quarter, nearly four times the revenue of Q2 2018, and just shy of 2017’s historically high figure of $12.6 billion for Q2. The average size of the seller (by revenue) also grew substantially, from $196 million in Q1 to approximately $597 million in Q2.

“What we saw in Q2 is the continuation of a trend toward mega-mergers, transactions in which the seller has $1 billion or more in annual revenues,” said Anu Singh, managing director at Kaufman Hall. “There is a tremendous amount of uncertainty and volatility in the healthcare industry right now, driven in part by hospitals and health systems taking on more risk while continuing to operate on very thin margins. Some organizations are vulnerable, and they are searching for alignment with more sustainable platforms. However, for stronger organizations, new revenue streams and expansion into new regions are attractive options, and M&A activities are helpful for both. We expect to see this trend continue for the immediate future.”

A significant number of the transactions announced in Q2 2019 were divestitures, defined as the sale of one or more hospitals from one health system or hospital operator to another (including the sale of minority interests). Divestitures represented approximately 40% of the announced transactions. The majority of divestitures (five out of seven) were made by for-profit health systems or hospital operators.

One of the most noteworthy transactions in Q2 was the April announcement of the acquisition of Wake Forest Baptist Health in North Carolina by Atrium Health. Among the benefits are the addition of an academic medical center (AMC) to Atrium Health’s growing regional health system, which expanded from the Carolinas into Georgia with the acquisition of Navicent Health in 2018. Wake Forest’s seven hospitals will join Atrium Health’s 42 existing hospitals, creating a health system with combined annual operating revenue of more than $9 billion.

Another large transaction, announced in May, will bring together two health systems that are geographically contiguous – Gundersen Health System and Marshfield Clinic Health System – but have little overlap in their existing markets. The two integrated delivery systems will stretch from southwestern to north central Wisconsin, with additional locations in northeastern Iowa and southeastern Minnesota. The organizations have stated that they believe this transaction can help them become the preeminent rural healthcare organization in the country.

Finally, in June, Sanford Health and UnityPoint Health announced they had signed a letter of intent to explore a merger. If it moves forward, the combined system would have more than $11 billion in annual operating revenue and would rank among the 15 largest not-for-profit health systems in the country. Most of the two systems’ hospitals are located in North and South Dakota, Iowa, Minnesota, Wisconsin and Illinois, but Sanford’s acquisition of Evangelical Lutheran Good Samaritan Society, which closed in January 2019, gives it a presence in 26 states.

AMCs were acquirers in three of the 19 transactions announced in the first quarter. Religiously affiliated health systems accounted for another three. Two of the sellers in these transactions were non-affiliated, for-profit hospital operators, and one was a religiously affiliated health system. For-profit systems were acquirers in two of the 19 announced transactions.

The complete Q2 2019 report is available here.

About Kaufman Hall
Kaufman Hall provides a unique combination of software, management consulting and data solutions to help society’s foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; cost transformation; treasury and capital markets management; and mergers, acquisitions, partnerships, and joint ventures.

Kaufman Hall software includes the Axiom Software Suite, providing sophisticated, flexible performance management solutions that empower finance professionals to analyze results, model the future, and optimize organizational decision making. Solutions for long-range planning, budgeting and forecasting, performance reporting, capital planning, and cost accounting deliver decision support, reporting, and analytics within an integrated software platform. Kaufman Hall’s Clinical Analytics empower healthcare organizations with clinical benchmarks, data, and analytics to provide a higher quality of care for optimized performance and improved patient outcomes.

Press Contact:
Philip Anast
Amendola Communications (for Kaufman Hall)
Email: panast@acmarketingpr.com 
Phone: 312-576-6990

View original content to download multimedia:http://www.prnewswire.com/news-releases/more-mega-mergers-in-q2-drive-healthcare-ma-activity-to-near-historic-levels-kaufman-hall-report-shows-300887150.html

SOURCE Kaufman Hall