A new analysis from the Chicago-based Kaufman Hall consulting firm has found the sizes of the hospitals and health systems involved in mergers and acquisitions in the past two years to have grown steadily over time. A research report posted to the firm’s website on Jan. 12 and entitled “2022 M&A in Review: Regaining Momentum,” documents the trend.
The report states that, “With 17 announced transactions, the fourth quarter of 2022 was one of the most active quarters we have seen since the COVID-19 pandemic began near the end of Q1 2020. Four of the 17 announced transactions met our definition of “mega merger,” in which the smaller party has annual revenues in excess of $1 billion, and a fifth had a smaller party with revenues in the $500 million to $1 billion range. This was the third consecutive quarter in 2022 in which the average size of the smaller party across all announced transactions exceeded $800 million. As a result, the average smaller party size for the entire year reached an historic high of $852 million, well above 2021’s then-record size of $619 million.”
According to the report, there were 17 announced transactions in the fourth quarter of 2022 that involved hospital and health system mergers. And the average annual revenues of the smaller parties involved was $855 million, while the average annual revenues of the larger parties was $4.129 billion The total number of announced transactions in 2022 was 53.
The breakdown of smaller-party size by revenue was as follows:
> 27 percent: revenues under $100 million
> 42 percent: revenues between $100 million and $500 million
> 15 percent: revenues between $500 million and $1 billion
> 15 percent: revenues over $1 billion
As for not-for-profit versus for-profit deals, the following:
> 66 percent: not-for-profit acquiring not-for-profit
> 16 percent: not-for-profit acquiring for-profit
Transactions involving:
> Religiously affiliated seller: 4 percent
> Governmental seller: 6 percent
> Rural or urban/rural seller: 30 percent
> Financially distressed seller: 15 percent
Highlights of announced transactions in 2022 include the following:
The 53 total announced transactions for 2022 moved up from 2021’s recent historic low of 49 announced transactions (Figure 3).
The average profile of the smaller party in announced transactions remained strong. Smaller party annual revenues exceeded $1 billion in more than 15 percent of the transactions, just below last year’s historic high of 16.3 percent. More than 15 percent of smaller parties had a credit rating of A- or higher, consistent with a trend toward stronger credit ratings noted in 2020 and 2021 and significantly surpassing those historically high watermarks.
The high percentage of mega mergers and other significant transactions over the course of 2022 resulted in an historically high average smaller party size by annual revenue of $852 million, more than $200 million higher than last year’s historic high of $619 million. The compound annual growth rate (CAGR) of the average smaller party size over the past 10 years approached 12 percent, up from 8 percent in 2021.
While the number of announced transactions increased year over year, it remained below pre-pandemic activity levels. Nonetheless, the combined revenues of the parties in this year’s announced transactions resulted in more than $45 billion in total transacted revenue for the year, surpassing 2017’s recent historic high of $44 billion despite recording less than half of the total transaction volume.
Despite the financial difficulties that many hospitals and health systems encountered in 2022, the percentage of financially distressed sellers, at 15 percent, was slightly below the 16 percent level observed in 2020 and 2021.
Activity by not-for-profit hospitals and health systems as both acquirers and sellers continued to increase, growing from 81 percent of total transactions in 2020 to 87 percent in 2021 to 91 percent in 2022.
Highlights of announced transactions in 2022 include the following:
> The 53 total announced transactions for 2022 moved up from 2021’s recent historic low of 49 announced transactions (Figure 3).
> The average profile of the smaller party in announced transactions remained strong. Smaller party annual revenues exceeded $1 billion in more than 15% of the transactions (Figure 4), just below last year’s historic high of 16.3 percent. More than 15% of smaller parties had a credit rating of A- or higher, consistent with a trend toward stronger credit ratings noted in 2020 and 2021 and significantly surpassing those historically high watermarks.
> The high percentage of mega mergers and other significant transactions over the course of 2022 resulted in an historically high average smaller party size by annual revenue of $852 million, more than $200 million higher than last year’s historic high of $619 million. The compound annual growth rate (CAGR) of the average smaller party size over the past 10 years approached 12 percent, up from 8 percent in 2021.
> While the number of announced transactions increased year over year, it remained below pre-pandemic activity levels. Nonetheless, the combined revenues of the parties in this year’s announced transactions resulted in more than $45 billion in total transacted revenue for the year, surpassing 2017’s recent historic high of $44 billion (Figure 7) despite recording less than half of the total transaction volume.
> Despite the financial difficulties that many hospitals and health systems encountered in 2022, the percentage of financially distressed sellers, at 15 percent, was slightly below the 16 percent level observed in 2020 and 2021.
Activity by not-for-profit hospitals and health systems as both acquirers and sellers continued to increase, growing from 81 percent of total transactions in 2020 to 87 percent in 2021 to 91 percent in 2022.
