Value of hospital deals soared in Q1, Kaufman Hall says

By | April 10, 2021

Dive Brief:

  • The number of transactions involving hospitals and healthcare systems was down in the first quarter of the year compared to the same period in 2020, but the size of consummated transactions was significantly larger, according to a new report from Kaufman Hall.
  • Altogether, there were 13 transactions that took place during the quarter, fewer than half of the 28 that took place in the first quarter of 2020. The average seller size by revenue was $ 676 million, including several “mega” transactions involving a seller with $ 1 billion or more in annual revenue. That’s the third-highest figure for a quarter in the past decade. The record occurred in the second quarter of 2020, when the average seller size topped $ 800 million.
  • Kaufman Hall concluded that the size of the deals was influenced by the coronavirus pandemic, and that its effects will continue throughout the year.

Dive Insight:

There is a huge influx of money into healthcare, highlighted by the $ 6.7 billion raised by digital healthcare firms in the first quarter. But there is still a lot of money flowing into the buying and selling of hospitals.

Moreover, COVID-19 has been showing an impact on trends in recent quarters. That’s certainly true for the first quarter of this year, when the number of hospital deals plunged but their average value skyrocketed. In the first quarter of 2020, the average seller size by revenue was around $ 400 million. It was below $ 300 million in the first quarter of 2019. There were also an unusually high number of hospitals involved in the first quarter transactions — 72 in all. That volume drove up the value of the transactions.

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The biggest announced deal in the quarter of this year was LifePoint Health’s announced purchase of Ardent Health Services. The latter has annual revenue of around $ 4.6 billion.

“Organizations are seeing new value in diversification, whether that be across markets or revenue sources. LifePoint’s proposed acquisition of Ardent Health Services will add more densely populated suburban and urban markets in New Mexico, Oklahoma, and Texas to LifePoint’s existing, rural-focused portfolio,” according to Kaufman Hall’s report. “In this and similar cases, the transactions involve partnerships with health systems that have an established presence in their local markets.”

Other deals along those lines includes CommonSpirit Health’s planned sale of 14 hospitals in North Dakota and Minnesota to Essentia Health and Aspirus Health’s planned acquisition of seven Wisconsin hospitals from Ascension Health.

Kaufman Hall expects such deals to continue for the immediate future.

“We anticipate that COVID-19’s impact will continue to influence partnership, merger, and acquisition activity through the remaining quarters of 2021,” the company said in its report. “We have seen, for example, the pandemic’s effect on clarifying the strategic rationale for transactions that had been attempted earlier but are now moving forward in the signing of a definitive agreement between Care New England, Lifespan, and Brown University to form an integrated academic health system in Rhode Island, a transaction that has been contemplated for several years.”

Whether these megamergers will continue without government intervention remains to be seen. The Federal Trade Commission has been more active under the Biden administration than its predecessor, suing just days ago to block molecular laboratory giant Illumina from acquiring Grail.

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