COVID-19 spurs mega mergers despite lower number of transactions

por John R. Fischer, Senior Reporter | April 22, 2021
Business Affairs
The COVID-19 pandemic has led to fewer transactions but a higher number of mega mergers in Q1 2021
While the 13 transactions in Q1 2021 were fewer than the number in Q1 2020, the average size of these deals was significantly larger, with the average seller size by revenue at $676 million.

This, according to Kaufman Hall, is the result of a spur in mega mergers, deals in which the smaller partner or seller has average annual revenues in excess of $1 billion, as well as several transactions with seller revenues between $500 million and $1 billion.

The cause is the COVID-19 pandemic, Anu Singh, managing director of Kaufman Hall, told HCB News. “We have also seen COVID’s effect this quarter on clarifying the strategic rationale for some transactions that had been attempted earlier and that were paused, but are now moving forward.”

For-profit health systems were the acquirer in two transactions; academics the acquirer in three; and religiously sponsored systems the acquirer in two. Not-for-profit systems were the acquirer in the remaining six. The announced transactions included 72 hospitals facilities.

The most significant transactions of Q1 2021 included:

  • OU Health’s intent to merge with the University of Oklahoma College of Medicine
  • CommonSpirit Health’s planned sale of 14 hospitals in North Dakota and Minnesota to Essentia Health
  • UK Healthcare’s partnership with King’s Daughter’s Health System to expand tertiary care in eastern Kentucky and southern Ohio
  • Aspirus Health’s acquisition of seven Ascension Health hospitals in Wisconsin

Fueling these mega mergers is the desire for an established, local market presence, with many providers seeing value in diversification across markets and revenue sources. Partnering with smaller, local care facilities enables larger systems with a national presence to reallocate time, capital and resources to essential markets.

“We expect that organizations will continue to reevaluate the strategic rigor of past, present, and strategic partnership opportunities in response to new market dynamics,” said Singh. “These will result in other forms of affiliations and ventures.”

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