Largest Number of $1 Billion or Greater Mega Deals Ever Recorded
SKOKIE, Ill. – January 29, 2018 – Hospital and health system transactions announced in 2017 totaled 115, up 13 percent over 2016 and the highest number recorded in recent history, according to Kaufman Hall’s new report, 2017 in Review: The Year M&A Shook the Healthcare Landscape.
Deals are increasing in value as well as volume, with 11 transactions involving sellers with net revenues of $1 billion or greater, the highest number of mega-deals ever recorded. An increasing number of smaller, but still large transactions also occurred in 2017 among providers with revenue between $500 million and $1 billion. In 2017, 16 transactions involved hospitals and systems in this size range compared to just one in 2009. In addition, the total number of transactions in 2015 and 2017 was roughly the same at 112 and 115, but the aggregated revenue of transacted organizations in 2017 ($63.2 billion), was roughly double that of 2015 ($32 billion).
“We were not surprised at the trends that emerged in 2017. Providers have been repositioning over the past decade and trying to grow, diversify, and fill strategic gaps. The recent uptick in the scale of partnerships is quite staggering,” said Anu Singh, Managing Director of Kaufman Hall. “The size, magnitude, and complexity of these deals has reached a new level. It’s telling us that providers are reacting and responding to industry transformation by creating wider and deeper enterprises that can thrive in the face of disruption because they include physician alignment, broader base and type of care sites, and a full care continuum – all with access, relevance, and convenience for the consumer.”
A notable trend emerged among for-profit and not-for-profit providers in 2017. Thirty-two percent of 2017 sales transactions involved for-profit divestitures, primarily driven by Community Health Systems, Quorum, and Tenet. However, unlike previous years, not-for-profit organizations are stepping up as purchasers of these assets. In 2017, more transactions occurred with not-for-profits purchasing for-profit assets than for-profit organizations buying assets from their for-profit peers, which has not happened in the last several years.
The announcement of pivotal mega deals, such as CVS and Aetna, demonstrate how non-provider entities are moving aggressively into the provider space made vulnerable by high costs, low value, and lack of consumer focus. According to Singh, “There is a strong likelihood that we will see new entrants on the scene in 2018, such as Amazon’s foray into pharmaceuticals. Innovative companies will be looking to focus on one or more segments of the healthcare space where they can deliver a more optimal product or service than exists today. Disruption is guaranteed if they do. These companies have achieved scale and are looking to apply this competitive advantage to a traditional industry. They are ready to bring innovation quickly, and consumers are apt to see this distinction.”
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