Tag Archives: Megamergers

Megamergers Take Center Stage in M&A Activity

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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.

 

 

Report: There were fewer, but larger, hospital mergers and acquisitions in 2018

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https://www.fiercehealthcare.com/hospitals-health-systems/report-what-to-expect-healthcare-m-a-2019?mkt_tok=eyJpIjoiTkROak5UWXpOR1ZtT0RNeiIsInQiOiJBbmtrSGp0c0ZtU1hwNzRlOGNveVdHQ3JyenpWRE1FeXdVVjVYYzN0WFwvV1Vyb1ZkQWpVNHNMM29kOGw1bXRMVDA0bTNuUm1lQ1RVb0NzYVFGa0NWdGVRVk5pOGw3amFtbEI1YlpEdTdTTkYxbkFWSGlDT2lMMCtIZktpN0ZkYlcifQ%3D%3D&mrkid=959610&utm_medium=nl&utm_source=internal

Handshake business deal executives

The number of hospital mergers last year dipped about 22% in 2018 but grew in overall size as part of a broader trend toward megamergers, according to a new report.

In all, hospitals announced a total of 90 transactions in 2018, down from 115 in 2017, according to a report (PDF) from Kaufman Hall. The firm began monitoring hospital M&A in 2000. About 20% of the acquisition deals were considered distressed transactions.

The value of those deals is increasing, with the average size of a seller by revenue has grown at a CAGR of almost 14% per year since 2008 and reached a new high of $409 million in 2018.

“That so many of 2018’s mega-mergers involve the combination of systems from different—though often contiguous—geographies signals the desire of health system leaders to expand their organizations into new markets, or to bring in a partner from an outside market,” Kaufman Hall said in the report. “For health system leaders looking for an acquisition partner from outside of their organization’s home market, considerations may include the desire to improve operations within the home market, or a need for additional capital to better compete within the home market.”

Texas led the nation for M&A last year, clocking eight hospital deals with a total value of deals estimated to be about $6.8 billion. Most notably, the report points to Baylor, Scott & White’s planned merger with Memorial Hermann will bring together two Texas-based systems and combine Dallas/Fort Worth and central Texas markets with the Houston market.

Florida had seven announced deals worth about $3.6 billion, and Pennsylvania had six deals worth about $2.2 billion.

Kaufman Hall also cited the “slow but steady movement toward population health” as a factor in the desire to increase market presence and penetration.

“Effective risk management depends on a health system’s ability to improve cost efficiencies, care efficacy, and care management across the continuum, which may require both horizontal and vertical integration to achieve,” they said.

Kaufman Hall said as new combinations and competitors appear in the healthcare market, hospitals and health systems should double down on their consumer strategy and the fight to control healthcare’s “front door.”

They should also seek opportunities to deepen growth across the spectrum of healthcare services through combinations or partnerships with other healthcare organizations.