In our last quarterly report, we noted that the COVID-19 pandemic had produced a much less dramatic decline in M&A activity than might have been expected. We noted that the second quarter of 2020 saw two transformational transactions announced (transactions in which the smaller party, or seller, has annual revenues in excess of $1 billion) and a record-breaking average seller size in excess of $800 million. We also predicted that the pandemic might strengthen the rationale for strategic partnerships, leading to a potential uptick in M&A activity as the industry continues with its repositioning.

Market observations and announcements from Q3 indicate that these predictions are materializing:

  • Four transformational transactions were announced, including the combinations of Cone Health and Sentara Healthcare in the Southeast, Lifespan and Care New England in Rhode Island, CHI Franciscan (CommonSpirit) and Virginia Mason in the Pacific Northwest, and Novant Health, UNC Health, and New Hanover Regional Medical Center in North Carolina. This ties the highest number of transformational transactions that we have seen in a single calendar quarter.
  • The pace of certain transactions that were previously announced continued unhindered by the pandemic. For example, two significant community health systems (with annual revenues in the $500 million to $1 billion range)—Northwest Community Healthcare in suburban Chicago and Saint Peter’s Healthcare System in New Jersey—moved forward with their transactions in Q3. Northwest Community announced a partnership with NorthShore University Health System and Saint Peter’s signed a definitive agreement with Robert Wood Johnson Barnabas Health (RWJBH), following its announced intention in December 2019 to explore a strategic partnership with RWJBH.
  • Average size of seller by annual revenues remains at historically high levels, at just under $400 million in Q3.


Overview of Q3 Activity

With 19 transactions announced in Q3, activity for the quarter was largely on par with historical third-quarter activity (Figure 1) and was significantly above the 14 transactions announced in Q2 2020.

Number of Q3 Announced Transactions, By Year

Average size of seller by revenue for Q3 was in line with the highest historical year-end averages (Figure 2). Total transacted revenue for the quarter was consistent with historical activity for Q3 (Figure 3).

Average Seller Size by Revenue (in Millions), Q3 2020 Compared with 2015-2019 Year-End Averages
Total Q3 Transacted Revenue (in Billions), by Year

The quarter saw a high level of activity by not-for-profit hospitals and health systems. Seventeen of the 19 announced transactions were acquisitions by not-for-profit organizations, with five transactions involving religiously sponsored acquirers, and five involving academic acquirers.


Emerging Trends


Transactions are moving forward unaffected by the pandemic

Among the more significant transactions announced this quarter, many had been in progress before the pandemic struck. It appears that the pandemic had little impact on the pace or partner’s high interest for these tie-ups. New Hanover Regional Medical Center issued its RFP in January 2020 and assessed proposals from six health systems before deciding on a collaborative proposal from Novant Health and UNC Health.1 Northwest Community Healthcare made its decision to join NorthShore following an 18-month strategic assessment by its board.2 Saint Peter’s had announced a commitment to exploring a partnership with RWJBH in December 2019; the definitive agreement it signed with RWJBH in September 2020 capped a three-year evaluative and discernment process for a strategic partner.3 Even certain transactions that were put paused due to the impacts of COVID-19 were reignited during Q3, as evidenced by the execution of a definitive agreement between UMass Memorial Health Care and Harrington HealthCare.4


Partnerships have been strengthened or revived

Last quarter, we reported that Lifespan and Care New England had begun to explore reviving earlier plans to combine, which had been suspended in 2019, following the close partnership the systems forged in response to COVID-19. This quarter, those conversations resulted in a formal letter of intent to merge the two systems.5 CHI Franciscan and Virginia Mason noted their preexisting partnerships in obstetric and women’s health and radiation oncology in their announcement of plans to form a joint operating company.6


Systems that showed strength pre-COVID remain attractive partners

In January 2019, Moody’s Investors Service had commented on Northwest Community Healthcare’s solid market position and favorable demographics.7 A week before it announced its decision to join NorthShore, S&P Global Ratings affirmed Northwest Community’s A rating and stable outlook. Saint Peter’s University Hospital had its Ba1 Stable rating affirmed by Moody’s in June 2020 in a credit opinion that noted its favorable market position in a competitive environment, with strong niches in women’s and children’s services.8 The pandemic has not altered the solid fundamentals of good market position, strong demographics, and highly valued community services.


Systems see an opportunity to transform healthcare through partnerships

Transformation of the healthcare system was the theme of announcements from both Sentara/Cone Health and CHI Franciscan/Virginia Mason. Sentara and Cone Health see shared strengths in value-based care models, digital and virtual health, and integrated health insurance models. Cone Health’s CEO noted that the system has resisted growth “just for growth’s sake,” but sees in its combination with Sentara an opportunity “to tackle the toughest challenges in healthcare.”9 CHI Franciscan and Virginia Mason plan to form a system that “would serve as a prototype of care innovation nationally.”


Looking Forward to Q4 2020 and beyond

Heading into the final quarter of 2020, it is clear that COVID-19’s impact will remain with us well into 2021, if not beyond. Our experience to date and ongoing activity currently continue to suggest that the pandemic has done little to deter the pursuit and execution of those opportunities with a strong rationale for alignment. In fact, the pandemic may be acting as a catalyst for strategic partnerships and tactical transactions. We anticipate that the ongoing financial pressures of the pandemic will only strengthen the need for partnerships, with new opportunities emerging in the months ahead.


For more information, contact Anu Singh, Managing Director and Practice Lead for Kaufman Hall’s Partnerships, Mergers & Acquisitions group, by email or phone at (224) 724-3132.


1 Featherston, E.: “RFP Responses Are In: A Look at What Six Organizations Have Offered NHRMC.” WECT 6 News, April 21, 2020.

2 Placek, C.: “Northwest Community Healthcare Inks Merger Deal with NorthShore.” Daily Herald, July 8, 2020.

3 Robert Wood Johnson Barnabas Health: “Saint Peter’s Healthcare System and RWJBarnabas Health Announce Signing of Definitive Agreement.” Blog post, Sept. 10, 2020.

4 Paavola, A.: “UMass Memorial’s Acquisition of Harrington HealthCare Moves Forward.” Becker’s Hospital Review, Sept. 23, 2020.

5 Lifespan: “Lifespan and Care New England Move Forward with Letter of Intent to Merge.” Press release, Sept. 9, 2020.

6 Virginia Mason: “CHI Franciscan and Virginia Mason Sign Memorandum of Understanding to Explore Combining and Forming New Integrated Health System.” Press release, July 16, 2020.

7 Moody’s Investors Service: “Northwest Community Hospital, IL—Update to Credit Analysis.” Credit opinion, Jan. 14, 2019.

8 Moody’s Investors Service. “Saint Peter’s University Hospital, NJ—Update to Credit Analysis.” Credit opinion, June 30, 2020.

9 Sentara Healthcare: “Sentara Healthcare, Cone Health Join Forces to Transform Healthcare.” Press release, Aug. 12, 2020.