Megamergers Take Center Stage in M&A Activity

https://www.healthleadersmedia.com/strategy/megamergers-take-center-stage-ma-activity

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Despite continued and sometimes unsettling M&A activity in the industry, the fundamental mission of healthcare has not changed.


KEY TAKEAWAYS

73% of healthcare executive respondents will be exploring potential M&A deals during the next 12–18 months, according to a new HealthLeaders survey.

The recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation.

Merger, acquisition, and partnership (M&A) activity within the healthcare industry shows no sign of diminishing, with nearly all indicators pointing to continued consolidation, according to a 2019 HealthLeaders Mergers, Acquisitions, and Partnerships Survey. The fundamental need for greater scale, geographic coverage, and increased integration remains unchanged for providers, and this will sustain M&A activity for years to come.

Evidence of the M&A trend’s resiliency is found throughout the HealthLeaders survey. For example, 91% of respondents expect their organizations’ M&A activity to increase (68%) or remain the same (23%) within the next three years, an indication of the trend’s depth. Note that only 1% of respondents expect this activity to decrease.

Likewise, 38% of respondents say that their organization’s M&A plans for the next 12–18 months consist of exploring potential deals, up six percentage points over last year’s survey, and another 35% say that their M&A plans consist of both exploring potential deals and completing deals underway. This means that nearly three-quarters (73%) of respondents will be exploring potential deals during this period.


Megamergers and industry impact

While steady healthcare industry M&A activity has been with us for some time, a series of new and rumored megamergers and partnerships is capturing the headlines these days. This recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation, one that will likely alter the landscape in unanticipated ways.

The majority of respondents in our survey say that they expect significant industry impact from these megamergers, led by CVS Health’s merger with Aetna (68%), Walmart’s potential deal with Humana (57%), and Amazon’s partnership with JPMorgan Chase and Berkshire Hathaway (49%). While information regarding the latter two developments is still in short supply, respondents see the potential for large-scale impact.

Faced with such far-reaching and transformative new relationships, what are healthcare providers to do? As things currently stand, even the largest health systems lack the scale to negotiate on equal footing with most insurers, and these new hybrid organizations combine scale, technology, and innovative structures.

However, there is no need for providers to panic—these megamergers are still in the early stages of implementation, and the fundamental mission of healthcare has not changed.

“I don’t think people fully understand the real business purpose of this type of activity yet, or what these organizations are trying to get out of their connections,” says Kevin Brown, president and CEO of Piedmont Healthcare, a Georgia-based nonprofit health system with 11 hospitals and nearly 600 locations. “Time will tell regarding the impact they will have on the industry landscape and its different segments.”

“I haven’t spent a lot of time thinking or worrying about these new developments. Generally, I spend my time thinking about what we are doing on a day-to-day basis as an organization to fulfill our mission and take care of the communities we serve. I’m certainly aware of these developments, but it’s important not to get distracted from our core purpose,” Brown says.

 

 

Kaufman Hall: 2017 Hospital M&A activity to potentially outpace 2016

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/kaufman-hall-2017-hospital-m-a-activity-to-potentially-outpace-2016.html

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Eighty-seven hospital and health system transactions have occurred as of the end of the third quarter of 2017, leading some experts to suggest the total number of deals in 2017 may exceed the 102 deals completed in 2016, according to a recent analysis from Kaufman, Hall & Associates.

Kaufman Hall analysts report 29 transactions were announced during the third quarter, down slightly from the 31 deals announced during the second quarter of 2017.

Here are five findings from the analysis.

1. Eight transactions exceeding $1 billion in revenue have been announced in 2017 thus far. The figure is double the four such transactions announced in all of 2016.

2. The two largest transactions announced during the third quarter included the proposed merger between Charlotte, N.C.-based Carolinas HealthCare System and Chapel Hill, N.C.-based UNC Health Care — announced in September — and St. Louis-based Ascension’s proposed acquisition of Chicago-based Presence Health, announced in August.

3. Eight transactions announced during the third quarter of 2017 involved acquisitions by for-profit organizations, while 19 involved acquisitions by nonprofit institutions.

4. Three transactions announced thus far this year involved academic medical centers partnering with for-profit entities.

5. The three states with the highest number of transactions announced during the third quarter include New York, Pennsylvania and Illinois.

“Transactions among larger and like-sized organizations are rising as health systems across the country look to build scale and new capabilities for an uncertain healthcare environment,” said Anu Singh, managing director of Kaufman Hall. “These transactions are driven primarily by strategic imperatives and less so, by financial drivers … We’re also seeing an uptick in creative affiliations, with partnerships using non-traditional models to achieve their strategic goals in response to a new set of market factors that were not present a decade ago.”