CHICAGO, Jan. 10, 2019 /PRNewswire/ -- The trend of mergers between large healthcare provider organizations continued in 2018, as the average size in revenue of sellers (defined as the smaller of two organizations in a transaction) reached $409 million, according to Kaufman Hall's new report, 2018 M&A in Review: A New Healthcare Landscape Takes Shape.
This is the highest figure seen since Kaufman Hall began tracking this metric in 2008. It also represents a compound annual growth rate (CAGR) of almost 14 percent in the average size of sellers by revenue since 2008.
Other key findings in the report include:
The percentage of transactions involving financially distressed sellers continued to decline, down to 20 percent in 2018 from 21 percent in 2017
Not-for-profit systems were the acquirers in 76 percent of transactions in 2018, tracking closely with the numbers from 2015 and 2016 (75 percent) and 2017 (76 percent)
Texas led the way in number of transactions, with eight deals in 2018, while Florida followed closely behind with seven deals. Conversely, 16 states saw no announced transactions in 2018, including some, such as Kentucky and Massachusetts, that have seen relatively high merger and acquisition (M&A) activity in recent years
"What we're seeing is a move toward strategic growth, driven in part by the need to acquire expertise and resources to manage the industry-wide changes facing hospitals and health systems. These include changes in payment and care delivery models and the push for greater value, but also the emergence of new competitors that bring significant capital resources and strong capabilities in both digital technology and consumer experience to healthcare," said Anu Singh, managing director at Kaufman Hall. "Leaders in legacy healthcare organizations are taking a longer-term view, preparing their organizations for the challenging days ahead by filling gaps in their own capabilities. We anticipate this trend toward strategic growth will continue to gain momentum as healthcare organizations increase their focus on improving patient outcomes, reducing costs, and elevating the patient experience."
This year's report also notes growth in mergers across state borders, as health systems from different, though often contiguous, geographies come together to form regional health systems. A health system that seeks growth beyond its current market may believe it has maximized local expansion opportunities, or may see new opportunities in markets that have stronger demographics or higher population growth than its current market. It may also have developed strong operational capabilities or innovative clinical care models that can be exported to a new market. A healthcare organization looking for an acquisition partner outside its market may see an opportunity to improve operations or gain an influx of additional capital to compete more effectively within its market.
Another driver of the trend toward creation of regional health systems may be a desire to protect the organization against future disruptive shifts in the market, such as the announced joint venture between Amazon, Berkshire Hathaway, and JPMorgan Chase. A larger health system will likely have the financial resources and ability to gain the knowledge and experience needed to react more effectively to disruptions in the current business model.
"Healthcare in 2025 could look substantially different than it does today, both from a business and a care delivery perspective," said Singh. "The drive to push care out to smaller, less-expensive settings wherever possible through the use of analytics, video, remote monitoring devices, and other technologies will be unrelenting. So will the focus on moving from caring for the sick to keeping individuals and populations healthy in order to reduce the overall cost of healthcare in America. This report suggests that leadership in healthcare organizations recognizes that by consolidating their expertise and taking advantage of greater economies of scale, they will be in a better position to weather the changes they will face in a new healthcare landscape."
To download a copy of 2018 M&A in Review: A New Healthcare Landscape Takes Shape, click here.
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.
Kaufman Hall software includes the Axiom Software Suite, providing sophisticated, flexible performance management solutions that empower finance professionals to analyze results, model the future, and optimize organizational decision making. Solutions for long-range planning, budgeting and forecasting, performance reporting, capital planning, and cost accounting deliver decision support, reporting, and analytics within an integrated software platform. Kaufman Hall's Peak Software empowers healthcare organizations with clinical benchmarks, data, and analytics to provide a higher quality of care for optimized performance and improved patient outcomes.