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Mergers and acquisitions in health care surge in 2023


Financial distress a key driver of deals

Health care mergers expected to increase: ©Leowolfert -

Health care mergers expected to increase: ©Leowolfert -

A Kaufman Hall year-end analysis revealed a substantial increase in merger and acquisition activity within the health care sector in 2023, with 65 announced transactions compared to the previous year's 53. The report highlighted the prominence of financial distress as a key factor influencing these transactions, marking 28% of deals, up from 15% in 2022. The analysis illustrates the challenges faced by hospitals and health systems in 2022, including sustained negative median operating margins, which continued to drive M&A decisions in 2023.

The report's other key findings include:

  • Mega Mergers: "Mega mergers," involving parties with annual revenue exceeding $1 billion, continued to play a significant role, representing 12% of the total announced transactions in 2023.
  • Average Size Growth: The average size of the smaller party in transactions remained high at $591 million, sustaining a trend observed in the last three years.
  • Market Reorganization: Health care markets experienced reorganization, influenced by the realignment of for-profit health system portfolios and the push to organize regional markets.

The report also provides insights into anticipated trends in 2024:

  • Focus on Regional Markets: Health systems are expected to intensify their focus on regional market development, emphasizing the balance between scale advantages and regional agility.
  • Continued Financial Pressures: Despite stabilizing financial performance, organizations facing ongoing financial struggles are advised to enhance attributes that make them attractive partners.
  • Movement Among Community Health Systems: Independent community health systems, impacted by market headwinds, are likely to seek partnerships for sustainability.
  • New Partnership Models: The report anticipates a surge in creative participatory partnership models, driven by factors such as the desire for independence and regulatory challenges.

The report also noted that with 2024 being a general election year, there is a potential impact of political outcomes on health care and partnership activities, presenting an additional variable in an evolving landscape.

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