The Covid-19 pandemic spurred large merger and acquisition deals among providers, as is evidenced by the transactions that dominated the landscape in early 2021.
Though the number of provider transactions was down in the first quarter of this year, the average size of those deals was significantly larger than the same period last year, according to a new report by healthcare consultancy Kaufman Hall.
There were 13 announced transactions in Q1 2021, which is well below recent historical averages. But the number of “mega” transactions — that is, deals in which the smaller partner or seller has average annual revenues in excess of $1 billion, as well as transactions with seller revenues between $500 million and $1 billion — was higher, the report shows.
The average size of sellers by revenue was $676 million, which is the third-highest quarterly figure for average seller size Kaufman Hall has recorded in the past 10 years. The highest was more than $800 million in Q2 2020, and the second-highest was over $700 million in Q4 2016, according to the report. The figure is up significantly from Q1 of 2020 when the average seller size by revenue was just $172 million.
Further, a high number of hospital facilities, 72 in total, were included in the announced transactions.
Some of the most significant transactions of Q1 2021 were UK HealthCare and King’s Daughters Health System’s joint venture partnership to expand access to tertiary-level services, and OU Medicine making plans to merge with the University of Oklahoma College of Medicine to create a fully integrated academic health system.
Overall, the total transacted revenue for the first quarter of this year was $8.8 billion — the second highest in the last five years, following Q1 2018 where total transacted revenue crossed $12 billion.
There are two key factors driving merger and acquisition activity in the first few months of 2021, according to the report. The first is that healthcare organizations are seeing greater value in diversification, both across markets and revenue sources, as a result of the Covid-19 pandemic.
The second is the significant local market knowledge that smaller healthcare facilities have. While these facilities may not have the financial scale of the larger systems, their understanding of local issues can provide advantages and facilitate growth.
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