CHICAGO, Oct. 15, 2018 /PRNewswire/ -- The substantial uptick in hospital and health system M&A activity is showing signs of a modest slowdown in the third quarter of 2018, following 2017's record-breaking level of transactions, according to the latest analysis by Kaufman, Hall & Associates, LLC, a leading provider of strategic and financial consulting services, and enterprise performance management and decision support software.
Eighteen transactions were recorded in the third quarter of 2018, a 38 percent decrease over the 29 deals recorded in the third quarter of 2017. Year-to-date transaction totals reached 68 through the third quarter of 2018, compared to 87 deals through the third quarter of 2017. Despite the drop-off in the volume of deals, total revenue transacted through the third quarter of 2018 was $10.7 billion.
"While there is a moderate drop in M&A activity, we are continuing to see providers engage in larger, more strategic partnerships needed to develop, access, or combine the resources required to transform legacy business models and support innovation," said Anu Singh, Managing Director at Kaufman Hall. "We expect to continue to see large-scale organizations pursue partnerships because they realize that while their ability to remain independent may exist, the path to long-term relevance and growth may require broader partnerships and collaborations."
The signature deal that is driving 2018 M&A revenue is the $7.2 billion for-profit LifePoint Health and RCCH HealthCare Partners merger announced in July. If the deal closes, the new entity will include 84 non-urban hospitals across 30 states along with regional health systems, physician practices, and ambulatory care and post-acute sites. Another significant partnership was announced on October 1 when Memorial Hermann Health System, Houston's largest nonprofit hospital system, and Baylor Scott & White Health, the largest nonprofit system in Dallas, communicated their intent to merge.
The sell-off of for-profit assets also continued in the third quarter, as Tenet Healthcare announced its intention to sell Louis A. Weiss Memorial Hospital, Westlake Hospital, and West Suburban Medical Center to an investment firm. The move eliminates Tenet's Chicago-area footprint, allowing the firm to focus on regions where it has a larger presence and greater market share. Tenet initiated its departure from the Chicago market with the October 2017 announcement of the sale of MacNeal Hospital to Loyola Medicine. In July 2018, Community Health Systems, which divested 30 hospitals in 2017, announced its plans to sell two of its Arkansas hospitals, comprising the Sparks Health System, to nonprofit Baptist Health in Little Rock. CHS characterizes these sales as progress on strengthening its portfolio.
"Following eight years of increasing M&A activity, we are seeing that for-profit and nonprofit systems, which often grew rapidly and opportunistically, are re-evaluating which markets are the ones where there is a strong strategic rationale to remain," said Singh.
Alternative transaction models also are emerging, such as the cooperative approach announced by Evangelical Community Hospital and Geisinger on October 1, which allows Evangelical to remain an independent community hospital. Evangelical and Geisinger will invest $265 million over the next five years in their shared service areas, and Evangelical will benefit from Geisinger's IT innovations and improved status in the system's health plan.
Texas is the most active state thus far in 2018, with five announced transactions, including two announced transactions in the third quarter. In 2017, Texas ranked third overall in terms of merger and acquisition activity with eight deals. Three transactions announced in the third quarter of 2018 involved religious-affiliated organizations acting as acquirers, and three involved a religious-affiliated target. Two transactions involved academic health systems acquiring other organizations. Three deals involved less than fully integrated transactions: a management services agreement, one affiliation, and one real estate transaction.
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.
Amendola Communications (for Kaufman Hall)
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SOURCE Kaufman Hall