Hospital Merger and Acquisition Activity Continues Upward Momentum, According to Kaufman Hall Analysis
Skokie, Ill (PRWEB) January 17, 2017 -- The number of hospital and health system partnership transactions have continued an upward climb in recent years, increasing 55 percent from 66 announced deals in 2010 to 102 in 2016, according to the latest analysis by Kaufman, Hall & Associates, LLC, a leading provider of strategic, capital, financial, and transaction advisory services and software tools. While there have been some fluctuations from year to year, the overall trend demonstrates that transactions are on the rise as organizations across the country seek to build capabilities and scale for healthcare’s transition to a value-based care delivery and business model.
The data show a slight dip with 102 transactions in 2016 compared to a high of 112 in 2015. The drop follows a year of significant growth, when the number of transactions rose 18 percent between 2014 and 2015. The biggest jump over the seven-year period occurred with a more than 33 percent increase from 66 transactions in 2010—when the Affordable Care Act was signed into law—to 88 in 2011.
An analysis of the credit ratings of organizations that are participating in these deals indicates an uptick in transactions targeting financially strong hospitals and health systems. From 2012 to 2016, for example, the number of target organizations with a credit rating equivalent to A- or above rose from one to 10, with a high of 13 in 2015. While these figures make up a relatively small portion of overall transactions, they suggest a potential sea change in priorities compared to decades past. Historically, partnership transactions primarily involved the expansion of larger organizations targeting smaller entities that were struggling financially. Trends in recent years demonstrate that mergers, acquisitions, and other forms of partnerships are a critical strategy as hospitals and health systems seek to provide coordinated, cost-effective care across the continuum.
“Decisions about whether to pursue partnerships increasingly are strategic in nature, rather than purely financial,” said Patrick Allen, Managing Director at Kaufman Hall. “Hospitals and health systems today face an array of disruptive forces, including rising demand for ambulatory and virtual care, flat-to-declining inpatient utilization, increasing consumerism and price sensitivity, and the emergence of non-traditional competitors. As the pool of smaller, independent hospitals and health systems shrinks, we are seeing more transactions among larger, more stable organizations that are opting to partner to help meet evolving demands and bolster market essentiality for the new healthcare era.”
Other key findings from the analysis include:
- 26 transactions were announced in the 4th quarter of 2016, compared with 28 in the 4th quarter of 2015
- Transactions included a variety of forms and structures, including mergers, acquisitions, joint ventures, and joint operating agreements
- Transactions occurred across a broad range of acute-care segments, including not-for-profit, for-profit, rural, urban, and academic health centers
- In 27 of the 102 transactions announced in 2016, the acquiring entity was for-profit; in 74 transactions, the acquiring entity was not-for-profit; and in one transaction, a not-for-profit and for-profit organization jointly acquired an organization
- A faith-based organization was the acquiring entity in 16 transactions and the acquired entity in eight transactions (with some overlap between the two categories)
- Academic health centers were the acquirers in 17 transactions and the targets of acquisitions in two; government-owned organizations were acquired in 15 transactions
- Operating revenue of acquired organizations in 2016 was greater than $22 billion
- In four transactions, the organization being acquired had annual revenues of more than $1 billion
- HCA and Kaleida Health were involved in the most transactions as acquirers, with four transactions each in 2016
- Community Health Systems was involved in five transactions, including four divestitures
- The largest deal announced was the merger of two not-for-profit, Catholic healthcare systems: Englewood, Colo.-based Catholic Health Initiatives ($14.5 billion in revenue) and San Francisco-based Dignity Health ($13.3 billion in revenue); if completed, it will create the nation’s largest not-for-profit health system serving nearly a quarter of the U.S. population
- The most active states were Texas with 17 transactions and New York with six
Using Kaufman Hall’s database, the analysis includes reported combinations of acute-care hospitals in the U.S., including mergers, acquisitions, joint ventures, and member substitutions. The total number does not include specialty hospital, long-term acute-care hospital, or surgical center transactions; minor asset sales from closed hospitals; affiliations or management service agreements; or international transactions.
About Kaufman Hall
Kaufman Hall provides management consulting services and enterprise performance management software that help organizations realize sustained success amid changing market conditions. Since 1985, we have been a trusted advisor to hospitals and health systems, helping them incorporate proven methods into their strategic planning and financial management processes and quantify the financial impact of their plans to consistently achieve their goals. Kaufman Hall helps clients identify and execute strategic initiatives that drive market and financial performance; provides financial advisory services to clients seeking capital; prepares and implements integrated strategic, financial, and capital plans; designs comprehensive capital allocation processes; and assists in the evaluation, structuring, and negotiation of partnership and divestiture opportunities. Additionally, Kaufman Hall provides sophisticated, integrated, and intuitive software solutions for long-range planning, budgeting, forecasting, reporting, capital planning, profitability, and cost management on a single platform. kaufmanhall.com
Krysta Ferry, Aria Marketing for Kaufman Hall, http://www.kaufmanhall.com/, +1 6173329999 Ext: 213, [email protected]
Share this article