Healthcare deal value up in Q2 as partnerships evolve: report

Atrium Health
The average size of seller by revenue grew to approximately $597 million in the second quarter, up from $196 million in the first quarter. That is largely due to three major transactions including the deal linking Atrium Health and Wake Forest Baptist Health and the Sanford Health/UnityPoint merger, according to a report from Kaufman Hall. (Atrium Health)

When it comes to partnering up, health systems are increasingly looking at options beyond a traditional marriage.

Instead, they are expanding their scale while avoiding “full-blown” acquisition using alternative strategic models for their unions, according to Kaufman Hall Managing Director Anu Singh.

“Partnerships are getting creative and the size of the participants is leading to a more strategic financial discussion,” Singh told FierceHealthcare. “That really is the theme we’re seeing right now.”

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RELATED: Healthcare mergers were down a bit in Q1. But watch for more partnerships, report says

According to a recently released report from Kaufman Hall on M&A activity in the second quarter, there were 19 transactions last quarter, down from 27 deals in the first quarter of 2019. That is in line with historic trends including the 21 deals in the second quarter of 2018, the report said.

The total value of transactions in the second quarter reached $11.3 billion, which is significantly above the norm for transaction value in a quarter and far outstripped the approximately $3 billion total value of transactions in the second quarter of 2018.

For the year, there have been 46 deals total, compared to 50 deals in the first half of 2018.

But those deals could look like a joint venture, a joint operating agreement or a merger into a new company, he said.

The average size of seller by revenue grew to approximately $597 million in the second quarter, up from $196 million in the first quarter. That is largely due to three major transactions including the deal linking Atrium Health and Wake Forest Baptist Health and the Sanford Health/UnityPoint merger.

RELATED: Year in review: The provider mergers that made headlines in 2018

Academic medical centers were buyers in three of the 19 deals, and religiously affiliated health systems were also acquirers in three of the 19 deals. There were also a number of divestitures, with 40% of the deals in the second quarter involving conscious uncouplings. In most of those deals, the seller was a for-profit health system.

“One quarter to the next quarter might see more or less transactions or the average revenue going way high or way low. To me, those are just brush strokes that are part of a pretty clear canvas here,” Singh said. “In general, transformation is going the way we expected it to. Larger organizations, more successful organizations are participating and even being willing to be the smaller organization in some of these partnerships if they believe the upside of a benefit to their community and their stakeholders and constituents is there. That is going to continue.”

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