Hospitals & Facilities

Hospitals increasingly cite ‘financial distress’ as reason behind M&A activity

Hospitals have been under “extreme financial pressure,” analysts wrote.
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Francis Scialabba

· less than 3 min read

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Hospital and health system deal activity is finally starting to rebound following a pandemic-era plunge, according to consulting firm Kaufman Hall, but hospitals are increasingly citing “financial distress” as the reason behind the deals.

In more than a third of the 18 hospitals and health systems deals made in Q3 2023—including mergers and acquisitions (M&A) and partnerships—at least one party cited financial distress as the impetus for the transaction. That figure is “well above historical benchmarks,” according to the firm.

“Hospitals and health systems have been under extreme financial pressure since 2022, when median operating margins remained in negative territory for the full year,” Kaufmann Hall analysts wrote in an October 12 report. “These challenges are reflected in the 39% percent of announced transactions in Q3 in which a party has cited, or publicly available information has enabled Kaufman Hall to infer, an element of financial distress as a transaction driver.”

Q3 deal activity by the numbers:

  • 18—The number of transactions that took place. A substantial increase over Q3 2022, which had 10 transactions, and Q3 2021, which had seven.
  • $8.2 billion—The total transacted revenue across the deals.
  • $453 million—The average annual revenue of the seller in Q3 transactions.
  • One—The number of “mega mergers” that took place. A mega merger is when the smaller party in a deal has annual revenues exceeding $1 billion, according to Kaufman Hall.
  • 14—The number of transactions in which the larger party was a not-for-profit health system.

Outside of traditional M&A, health systems are increasingly making “creative” deals in which the systems remain separate but form a partnership to increase the smaller system’s ability to provide patient care, Kaufman Hall analysts wrote in the report.

For example, in August, Novant Health acquired a 30% stake in Conway Medical Center in South Carolina. Novant executives said the move would increase Conway’s ability to provide patient care in parts of the state that were seeing fast population growth.

Kaufman Hall analysts said deal activity has steadily bounced back to pre-pandemic levels, and wrote that “there are many compelling reasons for hospitals, health systems, and other healthcare organizations to seek new alliances and partnerships in the current operating environment.”

Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.