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Healthcare mergers and acquisitions are down, but not as much as anticipated


The COVID-19 pandemic is having a profound effect on hospital finances, exemplified by data showing that operating EBITDA margins fell a dramatic 174{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} in April, and remained down 9{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} year-over-year in May. So far, though, mergers and acquisition activity hasn’t taken as serious a blow. Transaction volumes are down from the norm, but only slightly, suggesting the public health crisis may be strengthening the rationale for future partnerships.

According to second-quarter data from Kaufman Hall, there were 14 transactions announced in the quarter. That’s a dip from the 29 transactions recorded in Q1, but year-over-year it’s not a significant change from 2019, which saw 19 transactions in the second quarter. The coronavirus notwithstanding, deals are moving forward.

“Even more powerful than COVID right now is the path of transformation healthcare was on,” said Anu Singh, managing director of mergers, acquisitions and partnerships at Kaufman Hall. There are new capabilities within health systems, efficiency around expenses and care management, and the migration to value instead of volume. Strategic partners were looking for strategic partners pre-COVID, and that has continued.”


Driven in part by two large deals, the average size of the seller was one of the largest ever recorded, at more than $800 million. That’s almost double the $409 million recorded in 2018 — a record at the time. At  more than $12 billion, total transacted revenue was also quite high for the quarter.

Two deals in June drove those figures up. Illinois- and Wisconsin-based Advocate Aurora Health signed a non-binding letter of intent with Beaumont Health in Michigan to explore a potential merger, which would result in a healthcare system with $17 billion in annual revenues. 

At the same time, a group of physicians led by Steward Health Care acquired Cerberus Capital Management’s 90{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} ownership stake in the health system, encompassing 35 hospitals across nine states, as well as the county of Malta.

In addition to those deals, Lifespan and Care New England Health System, based in Rhode Island, resumed talks about a possible partnership.

There was a lot of activity among for-profit hospitals and health systems in the quarter. Of the 14 transactions recorded, nine were acquisitions of for-profit sellers, with six transactions involving major for-profit systems.

That indicates an intention among for-profit health systems to reshape their portfolios. Six transactions represented divestitures; these include Community Health Systems, Quorum and HCA. 

“I do think there’s an increasing amount of interest among for-profits to reevaluate their portfolios,” said Singh. “There have been instances of investments where the facilities they have aren’t going to produce the returns they wanted. They’re also speaking about moving into new markets and new geographies.”

Kaufman Hall anticipates further transactions focused on portfolio restructuring by both for-profit and nonprofit systems as they look to shore up their financial viability during the COVID-19 pandemic.

“Recent quarters have indicated that industry transformation is continuing and it’s real,” said Singh. “If you look at the composition in the types of transactions, you’re still seeing large health systems have a very clear strategy — even down to community hospitals, who are saying, ‘We have a need.’ … I think you can continue to see more of this M&A activity.”


Kaufman Hall’s June flash report, which looked at figures from May, found signs of improvement in hospital margins, volumes and revenue performance. That’s mainly attributable to two factors: the emergency CARES Act funding that was given out by the federal government, and the resumption of elective surgeries and nonurgent procedures, which were halted when hospitals shifted their focus to treating coronavirus patients.

Despite the encouraging signs, margins are still below 2019 levels, and still below budget.

Trinity Health is expecting $2 billion in losses and further layoffs due to COVID-19.

Twitter: @JELagasse
Email the writer: [email protected]


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