The healthcare mergers and acquisitions (M&A) landscape experienced a significant increase in activity during the third quarter of 2024, with total revenue reaching $13.3 billion. This surge, reported by Kaufman Hall, represents the highest level of M&A activity since Q3 2017, driven by 27 announced transactions. The increase in activity aligns closely with pre-pandemic levels, indicating a strong recovery in the sector.
One noteworthy transaction is the acquisition of operations at eight hospitals across Florida, Louisiana, and Texas by Health Care Systems of America. This transaction is part of a larger trend of "mega mergers," which refers to transactions where the annual revenue of the seller exceeds $1 billion. Other significant deals include Orlando Health's acquisition of Brookwood Baptist Health in Alabama, Prime Healthcare's planned purchase of eight Ascension-owned hospitals in Illinois, and the merger of Sanford Health and Marshfield Clinic Health System. These transactions reflect a strategic shift among healthcare providers as they aim to strengthen their market positions and improve operational efficiencies.
Additionally, large national health systems are actively engaging in portfolio realignment efforts. Community Health Systems (CHS) is exiting the Pennsylvania market by selling the Commonwealth Health system to the newly formed not-for-profit WoodBridge Healthcare. This divestiture is part of CHS's strategy to raise $1 billion and reduce its debt burden. Similar moves are being made by Tenet Healthcare, which plans to sell Brookwood Baptist Health to Orlando Health, and Ascension, which is divesting eight hospitals in Illinois to Prime Healthcare. These actions highlight the ongoing trend of consolidation and strategic repositioning within the healthcare sector as organizations aim to streamline operations and focus on core competencies.
The increase in announced transactions during Q3 2024 indicates a broader trend in the healthcare sector, where high transaction volumes have led to a decrease in the average size of the seller by annual revenue. The average revenue of the smaller party in these transactions dropped from $984 million in Q2 2024 to $492 million in Q3, aligning with recent year-end averages, excluding the exceptionally high figures seen in 2021 and 2022. This shift suggests that while large-scale mergers are prevalent, there is also a significant number of smaller transactions taking place, reflecting diverse market conditions.
Despite the overall increase in M&A activity, financially struggling hospitals, particularly those in less favorable markets, face challenges. The case of Crozer Health, which has been seeking a buyer since 2022, illustrates the difficulties faced by certain healthcare systems. Prospect Medical Holdings plans to sell the four-hospital system to a real estate company, CHA Partners, indicating a shift in ownership dynamics within the sector. Additionally, the County of Santa Clara Health System's acquisition of Regional Medical Center in San Jose reflects efforts to restore services at hospitals that have faced operational cutbacks in recent years.
The landscape of healthcare M&A is evolving, with a clear divide emerging between attractive assets that draw interest from established health systems and those that struggle to find buyers. This division reflects broader economic challenges and the varying financial health of hospitals across different regions. As the market continues to adapt to these dynamics, stakeholders will need to navigate a complex environment characterized by both opportunities and obstacles.