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First quarter of 2024 sees surge in hospital and health system mergers and acquisitions

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With 20 announced transactions, this quarter boasts the most significant Q1 activity since 2020

M&A activity on the rise: ©Nuthawut - stock.adobe.com

M&A activity on the rise: ©Nuthawut - stock.adobe.com

The health care landscape has witnessed a dynamic surge in mergers and acquisitions during the first quarter of 2024, marking a substantial uptick in activity and setting a robust tone for the year ahead, according to Kaufman Hall’s M&A Quarterly Activity Report. With 20 announced transactions, this quarter boasts the most significant Q1 activity since 2020.

Among the 20 transactions, four were categorized as "mega mergers," involving entities with annual revenue exceeding $1 billion. This represents one of the highest numbers of mega mergers observed in recent years, significantly impacting both the average seller size and the total transacted revenue figures, which remain at historically high levels.

The academic health sector has also demonstrated notable activity, taking the lead as the acquirer in six out of the 20 announced transactions, reflecting a strategic push towards expansion and consolidation within the industry.

The Q1 activity underscores a steady climb out of the slowdown experienced during the Covid-19 pandemic, outperforming the number of transactions seen in the same period over the past three years, according to the report.

A key highlight of the quarter was the diversity of transactions, showcasing a variety of trends that have been shaping the health care landscape:

Cross-market transactions: Connecticut-based Nuvance Health's plan to merge with New York-based Northwell Health stands out as a significant cross-market transaction, forming an integrated regional health system spanning across two states. This reflects a broader trend toward regional market development, allowing health care systems to diversify revenue sources and respond more effectively to regional health care needs.

Community health systems seeking larger partners: Independent community health systems, faced with mounting financial challenges, have increasingly sought partnerships with larger entities to ensure long-term viability. Examples include St. Peter’s Healthcare System's decision to join Atlantic Health System and Evangelical Community Hospital's plan to merge with WellSpan Health. These moves, driven by both immediate financial pressures and long-term strategic considerations, highlight the shifting landscape of health care delivery.

Portfolio realignment: Large health systems, both for-profit and not-for-profit, have continued to realign their portfolios. Tenet Health, in particular, has been active in selling hospitals and related operations, with transactions involving high-quality assets in strong markets. This trend towards portfolio optimization was mirrored by other major players in the industry, such as Quorum Health, HCA Healthcare, CommonSpirit Health, and Ascension.

A new partnership model: A notable development is the emergence of new partnership models aimed at driving transformation within the health care delivery system. Akron-based Summa Health's acquisition by General Catalyst’s Health Assurance Transformation Company (HATCo) represents an innovative approach, signaling a shift towards creative partnership structures focused on long-term sustainability and community impact.

Academic health systems building community networks: Academic health systems have continued to expand their networks of community-based hospitals, leveraging high occupancy rates and developing partnerships to enhance health care delivery at the local level. This strategy not only alleviates pressure on flagship academic institutions but also facilitates greater access to specialized services and research opportunities within the community.

Looking ahead, while there are signs of stabilization in industry performance, the report cautions that financial headwinds will likely remain a significant driver of M&A activity in the foreseeable future. As the health care landscape continues to evolve, strategic partnerships and mergers will play a crucial role in shaping the future of the industry, ensuring both resilience and innovation in health care delivery.

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