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During Q2, COVID-19 Generated a 'Much Less Dramatic Decline' in Provider M&A Activity

Analysis  |  By Jack O'Brien  
   July 02, 2020

The Kaufman Hall report indicated that sector consolidation was boosted by the potential Advocate Aurora Health-Beaumont deal, among other transactions.

Provider mergers and acquisitions (M&A) activity experienced a "much less dramatic decline" than expected in Q2, according to a Kaufman Hall report released Wednesday.

Only 14 deals were announced in Q2 2020, according to Kaufman Hall, which represented a decline 29 deals announced in Q1 2020, but only a dip from the 19 deals announced in Q2 2019. This marked the third consecutive year of declines in the amount of announced provider deals. 

In its Q1 report, Kaufman Hall found that provider M&A activity was in line with historical averages but tapered off in mid-March due to the domestic outbreak of coronavirus disease 2019 (COVID-19).

Related: COVID-19 Hampered Provider M&A Activity in Q1

During Q2, the average size of seller by revenue was $800 million, near record highs according to Kaufman Hall, and the total transacted revenue for the quarter topped $12 billion, despite the lack of deals.

The Kaufman Hall report indicated that sector consolidation was boosted by Steward Health Care's deal to buy back control of the company from Cerberus Capital Management, L.P., and the potential for a Advocate Aurora Health-Beaumont merger.

The report also cited the possible resurrection of a merger between Care New England and Lifespan Health System, two Providence-based providers. Discussions for a consolidation, led by Rhode Island Governor Gina Raimondo, fell apart last year.

Related: Lifespan, Care New England Will Resume Merger Talks

"We believe the COVID-19 crisis has only strengthened the healthcare industry’s imperative for transformation," the report read. "We anticipate that we will see more discussions that began pre-pandemic moving to definitive agreements or closure in the remaining quarters of the year. And we look for a resumption, or even an acceleration, in the pace of new transactions as hospitals and health systems reposition themselves for the post-pandemic future." 

Additionally, Kaufman Hall found that the pandemic "may have strengthened the rationale for partnerships," formed partnerships that may strengthen even after the crisis subsides, and for-profit providers have continued to "reshape their portfolios."

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

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