Megadeals push healthcare merger activity to $19.2 billion in second quarter
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Healthcare mergers and acquisitions had a record quarter in the second quarter of this year, with a record $19.2 billion in total revenue transacted, driven by a few “mega-deals” that led to a doubling revenues traded posted in the first quarter.
According Kaufman Hall M&A Quarterly Reportthe planned merger between Advocate Aurora Health and Atrium Health — in which the smaller party, Atrium, has annual revenue of $12.9 billion — was the biggest contributor to the historically strong quarter.
In mega deals, or mega deals, the smallest party has annual revenues over $1 billion.
Another mega-deal was announced in the quarter – MercyOne and Trinity Health, the smallest party posting $3 billion in annual revenue. And while they weren’t “mega,” two other big deals took place in the second quarter: Bellin Health System/Gundersen Health System ($800 million in revenue for smaller parties) and George Washington University Hospital/Universal Health Services ($600 million revenue for small parties) .
A total of 13 transactions were announced in the second quarter. That’s small compared to some of the numbers seen before 2020 when the pandemic hit, but mega-deals have more than made up for any potential lag in total deal revenue.
WHAT IS THE IMPACT
The $19.2 billion mark is double what healthcare posted in the second quarter of 2021, when $8.5 billion in revenue was generated. And the size of transactions announced in the second quarter – particularly the planned merger of Advocate Aurora Health and Atrium Health – generated a smaller average party size that was more than double the record year-end average size. of 2021 of $619 million. For the second quarter of 2022, the average small party size approached $1.5 billion.
In three of the 13 transactions, the acquirer was a for-profit health system. In one transaction, there was a university/affiliate acquirer in one university, and there was a religious affiliate acquirer in another. Other nonprofit health systems were the acquirer in the remaining eight transactions.
Some of the agreements went beyond the traditional horizontal partnerships between hospitals and health systems. New partnerships around the provision of skilled nursing and long-term care are an example of this trend: in late March, Hackensack Meridian Health announced that the majority of its long-term care facilities would be acquired by Complete Care. And in April, Virtua Health announced the sale of its two SNFs to Tryko Partners, which will continue to operate the facilities with support from Marquis Health Consulting Services.
These illustrate a growing trend among health systems to reassess strategic options for delivering skilled post-acute care, which may include selling or monetizing their current SNF assets, or partnering with specialist SNF operators. .
Changes in the long-term care sector and the desire to reinvest in basic services were cited as drivers of these transactions. Hackensack Meridian Health’s press release announcing the deal said “The long-term care industry has seen major changes over the past several years as a result of the COVID-19 pandemic, and this decision was taken in accordance with industry trends and best practices”.
Virtua Health President and CEO Dennis W. Pullin said, “By divesting from the skilled nursing field, we are better equipped to reinvest in areas where we can really make an impact.”
THE GREAT TREND
With no mega deals in the first quarter of the year, total deal revenue in that quarter was just $2.9 billion, spread across an all-time low of 12 deals.
An executive order issued by President Joe Biden last summer sought to clamp down on hospital and health insurance consolidations and other actions that he says lessen competition and drive up prices.
Hospital consolidation has left many areas, especially rural communities, without good options for convenient and affordable health services, according to the order. He encouraged the Justice Department and the Federal Trade Commission to vigorously enforce antitrust laws and “recognizes that the law allows them to challenge prior bad mergers that previous administrations did not previously challenge.”
In the order, Biden encouraged the DOJ and FTC to review and revise their merger guidelines to ensure that patients are not harmed by such mergers.