SKOKIE, Ill., April 26, 2018 /PRNewswire/ -- Hospital and health system partnership transactions are continuing at a brisk pace in 2018. Thirty transactions were announced in the first quarter, up more than 11 percent from the first quarter of 2017, according to the latest analysis by Kaufman Hall, a leading provider of strategic and financial consulting services, and enterprise performance management and decision support software. In the first quarter of 2018, three deals involved systems with $1 billion+ in revenue, and four transactions included systems with revenue bases of $500 million to $1 billion that were seeking to align with even more sizable provider organizations. This continues the mega-deal trend that included 10 announced transactions in 2017 involving sellers with net revenues of $1 billion or greater, as detailed in Kaufman Hall's year-end recap report.
"Sizable organizations are continuing to pursue even larger partners in 2018, as providers look to establish a broader base of services and operations, in part, to compete against non-traditional market entrants that are bringing consumer focus and lower costs to the industry," said Anu Singh, Managing Director at Kaufman Hall. "Greater scale enables health systems to build the tangible and intellectual capital required to secure the resources they need to transform traditional business models from an economic and service standpoint. Without such scale, legacy hospitals and health systems are going to find it difficult, if not impossible, to stay competitive in markets with these new entrants and emerging mega-systems."
The largest deal of the quarter was the announced merger of Bon Secours Health System and Mercy Health. The merged entity would form a 43-hospital system serving seven states, with $8 billion in net operating revenue. Other significant transactions include Einstein Healthcare Network, the largest independent academic medical center in the Philadelphia region with 1,000 beds, joining Jefferson Health, a 14-hospital system with about $5 billion in annual revenue, and HCA Healthcare, Inc., acquiring Mission Health, a seven-hospital system based in Asheville, N.C.
HCA's deal with not-for-profit Mission Health advances the for-profit corporation's acquisition strategy at a time when other for-profit healthcare organizations have been trimming their portfolios, as evidenced by Community Health Systems' announced divestiture of six hospitals in the first quarter of 2018. In 2017, 32 percent of sale transactions involved for-profit divestitures. In the first quarter of 2018, slightly over one-third (11) of the transactions included for-profit targets.
"Large for-profit and not-for-profit health systems continue to reposition their operations to increase market access in regions of strategic interest, while rationalizing, downsizing, and even exiting markets where there is not a path to relevance over the long term," commented Singh. "These moves reinforce the shift from the financial to the strategic rationale of most partnership activity. At least in this dimension, the distinction between for-profit and not-for-profit is dwindling."
An additional trend from 2017 that is continuing in 2018 is the increasing activity of not-for-profit providers as the larger entity in transactions. Thus far in 2018, 27 percent of acquirers are for-profit companies, while 73 percent are not-for-profit. Eleven deals involve for-profit targets, while 19 transactions include not-for-profit targets. Texas is the most active state thus far in 2018, with three announced transactions in the first quarter. Texas ranked third overall in terms of merger and acquisition activity in 2017 with eight deals.
About Kaufman Hall
Kaufman Hall provides management consulting and software to help organizations realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods into their strategic planning and financial management processes, and quantify the financial impact of their plans and strategic decisions to consistently achieve their goals.
Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; cost transformation; treasury and capital markets management; and mergers, acquisitions, partnerships, and joint ventures.
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SOURCE Kaufman Hall