More on Mergers & Acquisitions

Healthcare M&A's down in 2020 but analysts say COVID-19 is a catalyst for future deals

Forty-four percent of healthcare CFOs say the pandemic will drive an increase in partnerships across the healthcare ecosystem.

Mallory Hackett, Associate Editor

The financial and operational fallout from the COVID-19 pandemic was felt deeply by the nation's hospitals and health systems, evident by diminished patient volumes and heightened labor and supply expenses.

Despite that, the year's hospital M&A activity remained at a similar level as years past, and analysts and health leaders alike expect the pandemic to be a catalyst for future deals and partnerships.

"It appears that COVID-19 has actually confirmed the strategic rationale underlying many transactions that were already underway, and may be acting as a catalyst for innovative strategic partnerships and tactical transactions," according to Kaufman Hall's 2020 M&A in Review report. "The pandemic has accelerated the need for strategic initiatives that address the opportunities of industry transformation and that reward well-thought-out alignment opportunities."

The analysts aren't the only ones who believe healthcare M&A activity will continue to grow in the new year. Forty-four percent of healthcare CFOs say the pandemic will drive an increase in partnerships across the healthcare ecosystem, according to the 2021 BDO Healthcare CFO Outlook Survey.

In 2021, 31% of CFOs plan to acquire physician practices, 30% want to join a clinically integrated network, 28% expect to merge with another organization, 24% plan to enter into a joint venture, 20% may need to sell to another organization and 17% expect to acquire another organization.

Compared to 2019's 92 transactions, last year's 79 deals are "remarkable" in that they stayed within the pre-pandemic range, according to the Kaufman Hall report.

"Aside from the economic shock, the focus of many management teams on clinical and operational needs affected their ability to focus on certain long-term strategic initiatives, including partnership activity," the report said. "In the face of these pressures, it is remarkable that M&A activity for the year stayed within the historic range of activity seen over the past 10 years."

The deals that took place last year involved more organizations acting as the seller with significant scale and high credit quality, according to the Kaufman Hall report.

Seven of the announced transactions in 2020 were considered "mega-mergers" (when the seller has more than $1 billion in annual revenue), compared to three in 2019. The average revenue of the smaller partner in 2020 was $346 million, up from $278 million in 2019. Additionally, 10 deals were recorded where the smaller partner had a credit rating of A- or higher in 2020, up from five such transactions in 2019.


The partnerships built last year and those coming down the pike will allow participating organizations to focus on a number of business strategies, according to Kaufman Hall.

COVID-19 forced many health systems to reevaluate their core business strengths and, in turn, led some to divest in underperforming areas.

Moving forward, organizations with strong balance sheets will be in a position to take advantage of other system's divestitures to grow their capabilities and expand into new markets, according to Kaufman Hall.

The report anticipates that well-positioned health systems will also seek out partnerships with other healthcare verticals such as skilled nursing, home health, behavioral health, laboratories and post-acute care.

Partnerships between smaller, independent hospitals and larger health systems allow for gaps in the healthcare infrastructure to be addressed, which will showcase the advantages of regionalization and scale in meeting public health needs, Kaufman Hall said.

These partnerships will also allow for the social determinants of health to be better addressed, the report said.

"It is our expectation that the largest and broadest health systems will be most capable and influential in engaging in socially driven programs that reduce the overall cost and intensity of 'sick' care, as efforts to maintain wellness among underprivileged populations accelerate."


For months, analysts have predicted a surge in M&A activity moving into 2021 as struggling hospitals search out business-preserving partnerships.

Of the 79 transactions that took place in 2020, there was BMC Hospital's purchase of Bayonne Medical Center, Concord Hospital's $30 million acquisition of LRGHealthcare, Beth Israel Lahey Health's addition of the Joslin Diabetes Center to its network, and RWJBarnabas Health's deal with Trinitas Regional Medical Center, just to name a few.

Twitter: @HackettMallory
Email the writer: