More on Mergers & Acquisitions

Mergers and acquisitions continue to grow, reshaping the healthcare landscape, says Kaufman Hall

There has also been growth in mergers across state borders, as health systems from different geographies come together to form regional systems

Jeff Lagasse, Associate Editor

The trend of mergers between large healthcare provider organizations continued in 2018, as the average size in revenue of sellers -- defined as the smaller of two organizations in a transaction -- reached $409 million, according to Kaufman Hall's new report.

This is the highest figure seen since Kaufman Hall began tracking this metric in 2008. It also represents a compound annual growth rate of almost 14 percent in the average size of sellers by revenue since 2008.


The percentage of transactions involving financially distressed sellers continues to decline, down to 20 percent in 2018 from 21 percent in 2017.

Nonprofit systems were the acquirers in 76 percent of transactions in 2018, tracking closely with the numbers from 2015 and 2016 and 2017 -- 75 and 76 percent, respectively.

Texas led the way in the sheer number of transactions, with eight deals in 2018, while Florida followed closely behind with seven deals. Conversely, 16 states saw no announced transactions in 2018, including some, such as Kentucky and Massachusetts, that have seen relatively high M&A activity in recent years.

The report also notes growth in mergers across state borders, as health systems from different, though often contiguous, geographies come together to form regional health systems. A health system that seeks growth beyond its current market may believe it has maximized local expansion opportunities, or may see new opportunities in markets that have stronger demographics or higher population growth than its current market.

It may also have developed strong operational capabilities or innovative clinical care models that can be exported to a new market. A healthcare organization looking for an acquisition partner outside its market may see an opportunity to improve operations, or gain an influx of additional capital to compete more effectively within its market.


Another driver of the trend toward creation of regional health systems may be a desire to protect the organization against future disruptive shifts, such as the announced joint venture between Amazon, Berkshire Hathaway and JPMorgan Chase.

A larger health system will likely have the financial resources and ability to gain the knowledge and experience needed to react more effectively to disruptions in the current business model.


"Healthcare in 2025 could look substantially different than it does today, both from a business and a care delivery perspective," said Kaufman Hall Managing Director Anu Singh. "The drive to push care out to smaller, less-expensive settings wherever possible through the use of analytics, video, remote monitoring devices, and other technologies will be unrelenting. So will the focus on moving from caring for the sick to keeping individuals and populations healthy in order to reduce the overall cost of healthcare in America."


A new poll of nearly 300 senior healthcare executives by Capital One is forecasting big growth in 2019, with results showing 97 percent of respondents expecting to at least match 2018's performance this year and 73 percent saying they expect better performance.

The results indicate that M&A activity will continue to be a driving force in the industry, but there will an increased focus on growing other business lines as well. Capital One also forecasts a high demand for capital to accommodate the growth, with 96 percent of respondents citing an increased or consistent need for capital in 2019, compared to last year.

Twitter: @JELagasse

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