Hospitals and health systems had a smaller number of deals in the first quarter of the year compared to 2020, but the deals that did close were much larger in size, a new report finds.
The report, released Thursday from consulting firm Kaufman Hall, explores how the lingering financial effects of the pandemic are affecting transactions.
“Organizations are seeing new value in diversification, whether that be across markets or revenue sources,” the report said. “The decision to partner with health systems that have an established market presence remains a key driver, as another emerging trend is the significance of local market knowledge.”
Kaufman found there were 12 transactions that took place in the quarter, compared with nearly 30 that took place during the same period in 2020.
But those transactions were much larger in terms of overall value. The average seller size by revenue was $676 million. This was the “third-highest quarterly figure for average seller size we have recorded in the past 10 years,” Kaufman Hall said.
In contrast, the average seller size for the first quarter in 2020, which closed just as the COVID-19 pandemic was ramping up, was $400 million in revenue.
“The quarter’s activity includes a major combination of for-profit operators and a significant realignment of hospital ownership in the upper Midwest, which collectively result in a noteworthy number of 72 hospital facilities being transacted in Q1 2021,” the report said.
One of the largest transactions in the quarter was Essentia Health’s bid to buy 14 hospitals owned by the Catholic nonprofit system CommonSpirit Health.
Aspirus Health, a health system based in Wisconsin, also announced a plan to buy seven hospitals in the state from Ascension Health.
One of the big drivers of the deals was to diversify their markets and sources of revenue.
Another major trend was local market knowledge, which could help larger systems.
“CommonSpirit’s and Ascension’s transfer of assets to local systems in the upper Midwest ensures the continued vitality of these assets under the management of a more focused and regionally driven operator,” Kaufman Hall said. “This allows larger systems with national presence to reallocate their time, capital and resources to markets that they deem essential to their organization’s future success.”