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Analysis

COVID-19 Hampered Provider M&A Activity in Q1

By Jack O'Brien  
   April 06, 2020

The volume of mergers and acquisitions activity fell off after March 12, according to a Kaufman Hall report.

Provider mergers and acquisitions (M&A) activity during Q1 was in line with historical averages but tapered off in mid-March due to the domestic outbreak of coronavirus disease 2019 (COVID-19), according to a recent Kaufman Hall report.

There were 29 announced transactions in Q1, more than the 27 announced deals in 2019 but less than the 30 announced deals in 2018.

However, Kaufman Hall cited the disruption caused by the COVID-19 pandemic as a sign that the Q1 M&A activity will be "an uncertain predictor of activity" for the rest of the year.

Related: COVID-19 Outbreak Threatens Health Systems With New Financial Challenges

The report also stated that M&A activity will serve as a signal as to whether the provider sector is moving beyond the impact of the coronavirus outbreak.

Given the financial challenges facing hospitals and health systems across the country, especially smaller community organizations or those in areas that have been particularly hard hit by the virus, Kaufman Hall expects there to be an increased drive to consolidate and shore up available capital and operational resources.

Related: Hospital Finance Leaders Brace for Operational Issues Related to COVID-19

"In the longer term, the COVID-19 pandemic may prove to be an unexpected, externally-driven catalyst of future healthcare M&A activity," the report stated. "Before the pandemic, we continually expressed the benefits that larger health systems have in their ability to dedicate resources, invest in new models of care, or pursue new network or other population health models. The impact of the pandemic is revealing a new set of positive attributes for larger systems."

Related: Jefferson Health CEO Talks About Healthcare's 'New Normal' After COVID-19

The average seller size by revenue per deal was below $200 million, the lowest since 2015, while total Q1 transacted revenue by year was just below $5 billion, in line with statistics from 2019.

Of the deals announced in Q1, the two major transactions mentioned in the report were Huntington Hospital's decision to affiliate with Cedars-Sinai Health System and four hospitals on the South Side of Chicago that announced plans to form one health system. 

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


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