Healthcare Merger and Acquisition Activity Increased in Q3 2020

The pace of healthcare merger and acquisition activity continues to be unhindered by the COVID-19 pandemic, according to the latest M&A Quarterly Activity Report from Kaufman Hall.

The report highlighting healthcare merger and acquisition activity in the third quarter of 2020 found that providers announced 19 transactions between July 1 and September 30, 2020. The number is up from just 14 transactions during the second quarter of 2020 and is on par with historical third-quarter activity, the firm reported.

Total transacted revenue for the quarter was also in line with historical third-quarter activity, according to the report.

Of the 19 transactions, 17 were acquisitions by non-for-profit organizations, including five transactions involving religiously sponsored acquirers and five transactions involving academic acquirers.

Third-quarter healthcare merger and acquisition activity was largely up because of deals in progress from before the pandemic. For example, New Hanover Regional Medical Center in North Carolina issued a request for proposals in January 2020 and just recently decided on a collaborative proposal from Novant Health and UNC Health.

Illinois-based Northwest Community Healthcare also recently announced its decision to join NorthShore after an 18-month strategic assessment.

Some healthcare merger and acquisition deals paused during the height of the pandemic were also restarted by the third quarter, such as the execution of a definitive agreement between UMass Memorial Health Care and Harrington HealthCare, the report stated.

Other planned deals, however, have fallen through, including a transformational deal announced the second quarter of 2020.

The planned merger between Advocate Aurora Health and Beaumont Health is off, according to a recent announcement from the health systems. The merger would have created a $17 billion health system.

Beaumont Health CEO John Fox cited the pandemic as one of the reasons why the planned merger fell through, but these cancelled transactions are not necessarily a new trend, according to Anu Singh, managing director and leader of the Mergers, Acquisitions & Partnerships practice at Kaufman Hall.

While not commenting on the Advocate Aurora Health and Beaumont Health situation, Singh told RevCycleIntelligence that the firm has observed a consistent number of cancelled transactions pre- and -post-pandemic.

And appetite for new healthcare merger and acquisition deals is still there.

“The pandemic may be acting as a catalyst for larger strategic partnerships and tactical transactions,” said Singh. “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.”

On the other end of the spectrum though, “tactical transactions may result as smaller and less capitalized organizations seek the benefits of larger systems,” stated Singh.

Partnerships are an opportunity for providers to transform healthcare, as evident by recent announcements from both Sentara/Cone Health and CHI Franciscan/Virginia Mason, experts at Kaufman Hall explained in the report.

In August, Sentara and Cone Health highlighted their planned merger’s ability to advance value-based care and virtual health offerings. Cone Health’s CEO Terry Akin even said the health system “doesn’t intend to grow simply for the sake of growth.”

In a similar vein, CHI Franciscan and Virginia Mason stated that they plan to form a system that “would serve as a prototype of care innovation nationally.”

“We continue to see strong interest in the formation of partnerships that are focused on transforming how care is delivered by both parties,” Singh said. “In addition, the pandemic has not altered the solid fundamentals of good market position, strong demographics, and highly valued community services. As a result, systems that showed strength pre-COVID-19 remain attractive partners.”

More hospitals and health systems are also partnering with market “specialists,” Singh stated, which are “innovators or segment-focused organizations where a broader continuum of care opportunity can be jointly pursued.”