Pandemic has had little impact on deals.
An examination of third quarter merger and acquisition activity by consulting firm KaufmanHall shows that the COVID-19 pandemic has done little to slow the pace of deals in the health care industry.
Four transformational transactions were announced in the quarter, which ties the highest number of transformational deals in a single quarter. In addition, two significant community health systems moved forward with their partnership deals, and the average size of seller by annual revenue remains at historically high levels, at just under $400 million in the third quarter.
Nonprofit hospitals and health systems were particularly active. Seventeen of the 19 announced transactions were acquisitions by nonprofit organizations, with five transactions involving religiously sponsored acquirers, and five involving academic acquirers.
Among the more significant transactions announced this quarter, many had been in progress before the pandemic struck. According to KaufmanHall, it appears that the pandemic had little impact on the pace or partner’s interest for these deals. Even certain transactions that were paused due to the impacts of COVID-19 were reignited during the quarter, as evidenced by the execution of a definitive agreement between UMass Memorial Health Care and Harrington HealthCare.
Systems that showed strength pre-COVID remain attractive partners. The pandemic has not altered the solid fundamentals of good market position, strong demographics, and highly valued community services, and systems see an opportunity to transform health care through partnerships. Transformation of the healthcare system was the theme of announcements from both Sentara/Cone Health and CHI Franciscan/Virginia Mason. Sentara and Cone Health see shared strengths in value-based care models, digital and virtual health, and integrated health insurance models.
Looking forward heading into the final quarter of 2020, it is clear that COVID-19’s impact will remain with us well into 2021, if not beyond. KaufmanHall says to date, ongoing activity currently continues to suggest that the pandemic has done little to deter the pursuit and execution of those opportunities with a strong rationale for alignment. In fact, the pandemic may be acting as a catalyst for strategic partnerships and tactical transactions. The report says that the ongoing financial pressures of the pandemic will only strengthen the need for partnerships, with new opportunities emerging in the months ahead.