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Hospital megamergers continue to drive near-historic M&A activity

Bret Schroeder, healthcare expert at PA Consulting, discusses hospital megamergers and sector M&A activity with Modern Healthcare.

Read the full Modern Healthcare article here

The article notes that health system megamergers continue to push deal activity to near-historic levels, evidenced by the fact that the amount of revenue tied up in such deals was nearly four times higher in the second quarter of 2019 compared with the prior-year period.

Kaufman Hall's latest healthcare M&A report tallied $11.3 billion in total transacted revenue in the recently ended quarter. That also approaches 2017's historically high figure of $12.6 billion in the second quarter, the report said. Despite the eye-popping revenue figures, the number of hospital and health system transactions—19—wasn't far from the 21 transactions announced in the prior-year period. The 46 transactions announced so far this year closely track the 50 announced at the halfway point of 2018.

Kaufman Hall's report included the proposed Charlotte, N.C.-based Atrium Health and Winston-Salem, N.C.-based Wake Forest Baptist Health merger announced in April. That deal would create a 49-hospital system with combined operating revenue exceeding $9 billion. It also cited the proposed merger announced in May between two Wisconsin-based systems: Gundersen Health System and Marshfield Clinic Health System. Kaufman Hall's report noted the two systems have little overlap in their existing markets, which combined will stretch from southwestern to north central Wisconsin with locations in Iowa and Minnesota.

Average seller size by revenue grew from $196 million in the first quarter of 2019 to about $597 million in the second quarter of 2019, that figure reached a record high of $409 million in 2018, according to the report. Divestitures represented about 40% of the second-quarter transactions, most of which were made by for-profit health systems.

Bret says: Ongoing wrangling over the Affordable Care Act, a potential recession and the upcoming presidential election could convince organizations to close their deals before the end of 2019.

He adds: "That might be why 2019 has been so frantic with the number of deals and the transaction size. They might think, 'We better get it done this year if the environment will change next year.' "

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