The average size of the smaller hospital partner by annual revenue increased to $619 million from $388 million in 2020.
There were fewer hospital mergers and acquisitions in 2021, but the deals that went through involved bigger health systems generating almost twice as much revenue when compared with M&As in 2020, Kaufman Hall reports in a new analysis.
Of the 49 consolidations identified in the KH analysis in 2021, eight (16.3%) were classified as "mega mergers," with the smaller partner's average annual revenues surpassing $1 billion. This was nearly double the percentage from 2020 (8.9%) and the highest in six years, KH said.
Overall, the average size of the smaller hospital by annual revenue increased to $619 million in 2021 from $388 million in 2020, KH reports.
The analysis identified several factors limiting smaller mergers in 2021, including the fact that there are simply fewer smaller, independent, unaffiliated community hospitals looking for a partner, and that acquiring hospitals are getting choosier.
"Organizations are focused on partnerships with a strong strategic rationale and have become increasingly selective in identifying potential partners," KH said. "They seek partnerships that will have a transformative impact through the addition of new capabilities, enhanced intellectual capital, and access to new markets or services."
The analysis also noted that:
- Smaller M&A partners with a credit rating of A- or better comprised more than 10% of transactions, which is consistent with 2020 transactions.
- Since 2011, average smaller partner size by annual revenue has increased at a compound annual growth rate (CAGR) of approximately 8%.
- Not-for-profit health systems' roles as both buyer and seller grew as a percentage of total transactions in 2021, representing 87% of announced transactions, compared with 81% in 2020.
- Rural or urban/rural sellers grew to 31% of announced transactions from 24% in 2020. The number of financially distressed sellers remained flat at 16% of announced transactions from 2020 to 2021.
Other notable trends identified in the analysis include hospitals’ greater focus on core markets and assets, strengthening intellectual capital resources, and addressing societal issues and underserved populations.
KH says these trends are expected to continue into 2022.
“Organizations are focused on partnerships with a strong strategic rationale and have become increasingly selective in identifying potential partners. They seek partnerships that will have a transformative impact through the addition of new capabilities, enhanced intellectual capital, and access to new markets or services.”
Kaufman Hall
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.
KEY TAKEAWAYS
Smaller M&A partners with a credit rating of A- or better comprised more than 10% of transactions, which is consistent with 2020 transactions.
Since 2011, average smaller partner size by annual revenue has increased at a compound annual growth rate (CAGR) of approximately 8%.
Not-for-profit health systems' roles as both buyer and seller grew as a percentage of total transactions in 2021, representing 87% of announced transactions, compared with 81% in 2020.
Rural or urban/rural sellers grew to 31% of announced transactions from 24% in 2020. The number of financially distressed sellers remained flat at 16% of announced transactions from 2020 to 2021.