The Evolving Landscape of Mergers and Acquisitions in Healthcare

Mergers and acquisitions in 2018 began to reshape the healthcare landscape.

A new report released by Kaufman Hall revealed that the average size in revenue of sellers reached $409 million — the highest figure seen since the metric started being tracked by the company in 2008. The total revenue also represents a compound annual growth rate of almost 14 percent in the average size of sellers by revenue since 2008.

Seven transactions last year involved sellers with net revenues of $1 billion or greater.

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In 2018, 90 hospitals and health systems announced mergers and acquisitions, with Texas leading the way with eight for a total transacted revenue of $6.8 billion.

Revenues less than $100 million made up 51 percent of the total mergers and acquisitions.

Kaufman Hall, a management consulting company, looked at four trends in its report: the growth of mega mergers, variations in merger and acquisition activity across the states, new healthcare combinations and competition and the converging strategies of for-profit and not-for-profit systems.

Most of the mega mergers announced in 2018 showed movement across state lines and multiple geographies to expand or form a regional system. Among these were Bon Secours and Mercy and Atrium Health and Navicent Health.

Baylor, Scott & White’s planned merger with Memorial Hermann aims to connect two Texas-based systems, further expanding its market reach.

Expanding into a new market could bring in a higher population or stronger demographics than the original market.

For a hospital or health system looking to expand, it is important to carefully assess its local market. Lack of opportunities or regulatory pressures may make mergers and acquisitions across state-lines a more viable expansion strategy.

And as new mergers and acquisitions occur, it creates more competition in the healthcare market.

Executives should double down on their consumer strategy as competition increases and seek to make acquisitions of their own to deepen their systems’ reach.

In 2018, it was clear that tech heavyweights are trying to move further into the healthcare space.

Companies like Amazon, Apple and CVS Health have billions of dollars in revenue and are looking to expand their customer base through increased access to health innovations.

According to the authors of the report, “new competitors are bringing massive scale and capital resources to the healthcare market, with annual revenues up to almost 10 times those of the largest not-for-profit health systems.”

And while these large businesses increase competition, not-for-profit systems were the ones making acquisitions in 76 percent of transactions in 2018.

When a non-for-profit and a for-profit acquisition takes place, the not-for-profit gains the consumer edge that it may not have had before. With acquisitions like this taking place, executives should continue to explore growth opportunities.

“What we’re seeing is a move toward strategic growth, driven in part by the need to acquire expertise and resources to manage the industry-wide changes facing hospitals and health systems,” said Anu Singh, managing director at Kaufman Hall.

The trend of mergers and acquisitions provides the chance for smaller market organizations to broaden their reach and gain depth in the market. But it also might make the strong organizations even stronger. And since there are no signs of mergers and acquisitions slowing down in 2019, executives need to be prepared to merge with an organization that will help their system reach a larger population.

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