The number of hospital M&A transactions dropped to 11 in the second quarter of 2024, down from the 20 transactions announced in the first quarter of this year. But that doesn’t mean that the hospital M&A space is anemic, according to a new report from Kaufman Hall.
Rather, it means that the hospital M&A is shifting its emphasis from scale to strategy, the report stated.
“While there are certainly advantages to scale, strategic partnerships have become much more relevant as competitive, operational and financial pressures intensify. Even the largest organizations are realizing that they cannot do everything on their own — strategic partnerships that bring new capabilities, resources, expertise, intellectual capital, or innovative products or services offer opportunities to fully meet communities’ healthcare needs,” said Anu Singh, managing director at Kaufman Hall.
This shift means that healthcare organizations must double down on understanding their value proposition, as well as their strategic gaps, he remarked.
With this understanding, organizations are better prepared to define what makes them attractive as a partner — and also the areas where they may need a partner to help them achieve their goals, Singh added.
“Complementary capabilities among collaborative partners are resulting in partnerships among organizations across a wider distance and across industry verticals in new structures and models,” he stated.
The report pointed out that two mega-mergers (deals in which the smaller party’s annual revenue exceeds $1 billion) were announced in the second quarter of this year. The first came when Florida-based BayCare disclosed plans to buy out Trinity Health’s interest in their joint venture. The second came when Kaiser Permanente-owned Risant Health named North Carolina-based Cone Health as its second acquisition target.
The Risant-Cone deal, the largest hospital M&A transaction in the second quarter, is emblematic of a trend that’s becoming more and more common in the space: cross-market mergers.
When two organizations’ headquarters are thousands of miles apart, the transaction becomes less likely to be subject to anticompetitive regulatory scrutiny.
To Singh, the existing scrutiny in the hospital M&A arena is similar to that of years past.
“There remains an ongoing focus by regulators on the market for inpatient care, but that does not reconcile with market reality. Healthcare delivery today is transforming — care continues to migrate to highly competitive outpatient and ambulatory settings. The long-term financial viability of many inpatient providers is under undue pressure from an archaic view of competition,” he said.
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