Though the pace of transactions has slowed, the size of mergers has grown, according to Kaufman Hall.
The number of health system mergers in Q2 slowed considerably but the size of mergers that occurred were at the highest level since 2017, according to a Kaufman Hall report released Thursday morning.
The amount of announced transactions during the quarter totaled 19, down from 27 in Q1 2019 but still in line with 21 mergers announced in Q2 2018. For the year to date, there were 46 announced transactions, down from 50 announced transactions in 2018.
However, the total transacted revenue of the mergers in Q2 2019 was $11.3 billion, quadrupling the amount from this time last year and falling just short of the $12.6 billion set in Q2 2017.
From Q1 to Q2, the average size of the seller by revenue grew from $196 million to just shy of $600 million, which Kaufman Hall attributes to the impact of three megamergers: Atrium Health-Wake Forest Baptist Health, Gundersen Health System-Marshfield Clinic Health System, and Sanford Health-UnityPoint Health.
Related: Megamergers Take Center Stage in M&A Activity
Related: 'Unprecedented World' of Provider M&A Activity
In dissecting the buyers and sellers in the provider M&A activity, Kaufman Hall found that academic medical centers and religiously-affiliated health systems each acted as acquirers for three transactions in Q2. Meanwhile, for-profit systems acted as acquirers in two announced transactions.
The report also indicated that divestitures accounted for nearly 40% of announced transactions, mostly from for-profit health systems, representing "sell-side" and "buy-side" strategies for providers.
Anu Singh, managing director at Kaufman Hall, said in a statement that the health systems seeking to take on a greater level of risk while operating on thin margins has contributed to "a tremendous amount of uncertainty and volatility."
"Some organizations are vulnerable, and they are searching for alignment with more sustainable platforms," Singh said. "However, for stronger organizations, new revenue streams and expansion into new regions are attractive options, and M&A activities are helpful for both. We expect to see this trend continue for the immediate future."
The report also highlighted the role that system rationalization has had on hospitals beyond divestiture activity, as organizations look to other providers to contribute capabilities they may not have currently.
Such examples include Gundersen and Marshfield angling to bring together "rural health and health plan expertise," as well as Atrium's addition of an academic medical center to its portfolio by merging with Wake Forest Baptist.
Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.