M&A revenue for healthcare systems reaches $45 billion in 2022

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The fourth quarter of 2022 was a significant period in terms of M&A revenue in the healthcare industry, with deals that occurred in the quarter pushing M&A revenue to $45 billion in 2022, according to a new analysis by Kaufman Hall.

Seven deals were announced in the fourth quarter, and four of them met Kaufman Hall’s definition of a “mega-merger,” in which the smaller party has annual revenue in excess of $1 billion. The fifth had a small party with revenues ranging from $500 million to $1 billion.

The fourth quarter was the third consecutive quarter in 2022 when the average underside size across all announced deals exceeded $800 million. Because of this, the average small batch size for the year reached $852 million, well above the record $619 million in 2021.

WHAT IMPACT

A total of 53 transactions have been announced for 2022. The smaller parties’ annual revenue exceeded $1 billion in over 15% of transactions, just below the 2021 all-time high of 16.3%.

Although the number of transactions has increased slightly from the 49 published in 2021, it is still below pre-pandemic levels. But the combined income of the parties from the 2022 deals brought the total deal income for the year to more than $45 billion. This is higher than the recent all-time high of $44 billion recorded in 2017, despite less than half of the total transaction volume.

While many hospitals and healthcare systems continued to struggle financially in 2022, the 15% percentage of vendors in financial distress was slightly below the 16% seen in the previous two years.

Buying and selling among non-profit hospitals and healthcare systems has grown to 91% of total transactions in 2022, up from 87% in 2021 and 81% in 2020.

One of the important trends in 2022 has been an increase in intermarket transactions that link healthcare systems located in different geographic regions, with little to no overlap between markers.

Transactions linking Advocate-Aurora Health and Atrium Health, University of Michigan Health and Sparrow Health, Sanford Health and Fairview Health are cross-market transactions, with Kaufman Hall noting a move to scale based on capability rather than scale based on market. .

Perhaps the key to this shift, according to Kaufman Hall, is the desire to distribute operational risk across multiple markets and different types of markets, such as rural or urban. But other factors may also play a role, such as expanding access to specialized academic medical center services to new markets.

A November health survey found that this cross-token consolidation could hurt competition. Economic theory predicts—and evidence is emerging—that intermarket hospital systems raise prices by exerting bargaining power in markets when negotiating with common customers, primarily insurers.

BIG TREND

A December analysis by PricewaterhouseCoopers showed that M&A in the healthcare industry is expected to continue with ever-increasing transaction volumes despite a shaky economy and recession fears.

Analysts predict that transaction volumes will continue to rise due to increased focus on private equity platform add-ons and continued sector resilience. Value-based care is expected to grow. PwC has found that pay-for-service models are in the rearview mirror and players are diving into them and embracing value-based care throughout the ecosystem.

These factors, along with continued high levels of corporate cash, underpin a continued strong outlook for healthcare transaction volumes in 2023.

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