Kaufman Hall: Value of M&A Combinations at Historic High
Eleven hospital mergers and acquisitions were announced in Q2 2024, indicating solid but reduced activity after a very busy Q1, according to analysis published by leaders at the Chicago-based Kaufman Hall consulting and advisory firm. What’s more, the total transacted revenue involved in the second quarter of 2024 remained near historic highs at $10.8 billion, despite fewer overall transactions. All this was included in the firm’s “M&A Quarterly Activity Report: Q2 2024.”
Kaufman Hall analysts say data show that M&A activity was undertaken by hospitals and health systems in deliberate, strategic pursuit of intellectual capital, complementary capabilities, or to support system reconfiguration. Two of the 11 announced transactions in Q2 were mega-mergers, but neither was in pursuit of greater scale, analysts say.
“As pressure intensifies to transform the current health care system to bring greater value to patients and communities, the impetus of M&A activity will rely less on seeking capital in traditional ways and instead move toward new, strategic partnership models,” said Anu Singh, managing director and Mergers & Acquisitions practice leader with Kaufman Hall. “Many of these M&A transactions enable hospitals to sustain and enhance access to care, launch new services, or strengthen and stabilize systems, which allows for future growth.”
Hospitals’ financial performance in May held relatively steady, according to Kaufman Hall’s most recent National Hospital Flash Report. Rates of change for margins and other key performance indicators have slowed, which analysts say is a sign that the environment is stabilizing.
“The widening gap between higher-performing and lower-performing hospitals illustrates the need for longer-term strategic investments. Short-term cuts and crisis management will not make for sustainable change,” said Erik Swanson, senior vice president and Data and Analytics Group leader with Kaufman Hall. “Hospitals should seize this relative moment of calm to focus on enterprise strategic planning in order to achieve long-term success.”
An emphasis on strategy over scale characterized the most significant transactions of Q2 2024 and built upon trends we have been commenting on in recent past reports. One trend is the pursuit of intellectual capital and new or complementary capabilities through a strategic partnership, often involving an innovative partnership model. Another trend is the focus of large regional or national systems on market reorganization and strategic realignment of their system portfolios. A third trend is the development of networks involving academic health systems and community hospital partners to sustain and enhance access to care.
A new partnership model takes hold
As the report noted, “One of 2023’s biggest M&A stories was Kaiser Permanente’s launch of Risant Health. Risant is a new Kaiser health systems division designed “to spread the very best in population health to diverse markets across the country” by leveraging Kaiser’s expertise in both care and coverage and the capabilities of the systems it acquires. When it was formed, Risant simultaneously announced its first acquisition, Pennsylvania-based Geisinger Health, a transaction that closed earlier this year. With Q2 2024’s announcement that Risant is buying a second health system, North Carolina-based Cone Health (one of the two mega mergers in Q2 2024), it is clear that Risant is on its way to accomplishing its announced goal of acquiring four to five like-minded community-based health systems over the next few years.”
What’s more, the report noted, “Risant’s transactions represent a new model in healthcare M&A, one in which intellectual capital is as—if not more—important than traditional capital. Acquired systems retain their brand, their executive leadership teams, and local governance, but as Cone Health noted in a statement on the benefits of the transaction, the partnership with Risant “brings tools, expertise, and capital to accelerate our charitable mission and strategy.” The ability to launch new services or products, leveraging the expertise of systems that have successfully done the same, is a significant part of the Risant value proposition.”
