In 2023, the healthcare mergers and acquisitions landscape saw increased activity with 65 announced transactions, up from 53 in 2022, according to Kaufman Hall. Financial distress played a significant role, cited as a factor or evident in 28% of transactions, compared to 15% in 2022. The total transacted revenue amounted to $38.4 billion, with “mega mergers” (transactions where the seller has annual revenues exceeding $1 billion) representing over 10% of total announcements. The trends are expected to continue in 2024, with a focus on regional strategies and creative partnerships.
Hospital and health system mergers and acquisitions activity in 2023 was driven by increased pressure on operations and finances, according to Kaufman Hall’s latest analysis of healthcare transactions. The report reveals momentum around mergers and acquisitions continued throughout 2023 with 65 announced transactions, up from 53 in 2022. Financial distress was cited as a factor or was otherwise evident in 28% of announced transactions last year, compared with 15% in 2022.
– This whirlwind of transaction activity resulted in $38.4 billion in total transacted revenue, with “mega mergers”—those transactions in which the seller, or smaller party, has annual revenues in excess of $1B—representing more than 10% of the total announced transactions in 2023.
Financial Distress & Market Reorganization Dominates Health M&A Landscape
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The healthcare M&A landscape saw significant shifts in 2023, with two key trends dominating the scene:
1. Mounting Financial Pressures Fuel Partnerships: Financially distressed organizations seeking partners emerged as a defining factor, propelling the highest percentage of such transactions in recent history (28%). This pressure, impacting both smaller and larger systems, highlights the need for proactive strategizing and finding partners before distress limits flexibility.
2. Regional Market Reorganization Redefines the Playing Field: Health systems prioritized reshaping regional markets through various strategies:
– Portfolio Realignment: For-profit and even large not-for-profit systems like Ascension, CommonSpirit Health, and AdventHealth, optimized resource allocation by divesting non-core markets and focusing on areas with strong growth potential.
– Regional Consolidation: Systems like Froedtert Health-ThedaCare (Wisconsin), BJC Healthcare-St. Luke’s Health System (Missouri/Kansas), and Vandalia Health (West Virginia) aimed to create integrated networks within geographic areas.
– Academic Health System Expansion: These institutions continued building regional networks with community hospitals, utilizing their capacity for lower-acuity patients and relieving pressure on their main facilities.
Looking Ahead to 2024
The trends seen in 2023 are likely to continue in 2024 including:
– Regional Focus Intensifies: Balancing national scale with regional agility will be crucial as systems prioritize developing key markets or regions within their portfolios.
– Financial Pressures Remain Relevant: While performance is stabilizing, long-term sustainability concerns persist, prompting continued partnership exploration, even for previously stable community systems.
– Creative Partnerships Emerge: Regulatory challenges, cost-effectiveness, and a desire for autonomy are driving interest in innovative partnership models beyond traditional M&A structures.
– Political Uncertainty Looms: The upcoming general election could significantly impact healthcare and influence future M&A activity.
Source: Bio Space
