Hospital M&A was normal in Q1, but Kaufman Hall says that will change

Dive Brief:

  • Mergers and acquisitions among hospitals and healthcare systems for the first quarter of 2020 were in line with historical norms, according to Kaufman Hall, but the company expects the second quarter to be upended due to the COVID-19 pandemic. It observed in a new report that first quarter performance “will be an uncertain predictor of activity for the remainder of 2020.”
  • Altogether, 29 transactions were consummated in the first quarter, up slightly from the 27 that took place in the first quarter of 2019 but down from the 30 that occurred in the first quarter of 2018. Activity pretty much died down by the middle of last month.
  • While the revenue involving the deals average at just under $5 billion, most were of the small-bore variety, involving one hospital affiliating with a large system.

Dive Insight:

The business of healthcare entered uncharted territory last month as COVID-19 became a pandemic and most economic activity in the U.S. suddenly shut down. But while waiting for full economic data to be analyzed and reported, the first quarter for hospital mergers and acquisitions appears fairly normal — at least on the surface.

While the volume of deals was within historical norms, the deals themselves were fairly small, averaging just $172 million apiece — about $100 million below the average for 2019 and more than $200 million below 2018. The biggest was the affiliation of Huntington Hospital in Pasadena, California, with the Cedars-Sinai Healthcare System in Los Angeles. Terms of that deal were not disclosed.

Altogether, academic medical centers consummated six deals; for-profits, five; and religious organizations, two. Kaufman Hall said the kinds of deals that came together were also within historical averages.

The report noted that activity began tapering off after March 12 — one day after the World Health Organization declared the COVID-19 outbreak a pandemic.

Kaufman Hall does not expect deals to vaporize in the second quarter of the year, but said a slowdown was all but certain. “In cases where the strategic rationale is strong, the expectation is these initiatives will continue, but may experience a slight pause while the impacts of the pandemic are addressed,” the company said.

Moreover, risks and evaluations will also be more closely considered, according to Kaufman Hall.

“In instances where the outcome of the transaction is more severely impacted by the pandemic, the various risk considerations of each of the parties to the transaction will merit closer evaluation,” according to the report. “Similarly, as other third parties that had a critical role in completing the transaction reassess their commitments, the need to consider alternative approaches or solutions may be required.”

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