The healthcare sector has seen a rise in mergers and acquisitions (M&A) activity, particularly in the third quarter of this year, despite ongoing financial challenges.
A total of 27 hospital and health system deals were announced during this period, marking the highest level of activity recorded in 2024. This surge is largely attributed to the fallout from the Steward Health Care bankruptcy, which has prompted significant restructuring and consolidation within the industry.
Among these transactions, four were classified as "mega mergers," involving large health systems with annual revenues exceeding $1 billion. These included the acquisition of Brookwood Baptist Health by Orlando Health, Prime Healthcare's planned purchase of eight Ascension-owned hospitals in Illinois, and the merger between Sanford Health and Marshfield Clinic Health System. The involvement of established health systems in these transactions highlights a strategic shift towards expansion and growth, despite financial pressures.
The financial landscape for healthcare organizations remains precarious, with many struggling to find suitable partners. The average size of the seller by annual revenue decreased significantly from the previous quarter to $492 million in Q3 2024. However, the total revenue transacted in Q3 reached $13.3 billion, the highest for this quarter in eight years.
The report also notes that seven of the 27 announced transactions involved for-profit acquirers, while others included academic, religiously affiliated, and governmental entities. This diverse mix of acquirers indicates a robust interest in healthcare assets, particularly from established regional not-for-profit health systems that are keen to capitalize on opportunities for growth.
The ongoing financial difficulties faced by organizations like Steward Health Care have raised concerns about potential hospital closures. However, many struggling hospitals are finding new partners willing to invest in their operations, indicating a trend where consolidation may serve as a preferable alternative to closure.
The report also highlights the larger issue of financially distressed organizations struggling to secure partnerships. As the industry evolves, strategic alliances and mergers will likely become increasingly critical for survival.
In addition to the surge in acquisitions, large national health systems are engaging in portfolio realignment efforts. For example, Community Health Systems (CHS) is selling its three-hospital system, Commonwealth Health, to the newly formed not-for-profit WoodBridge Healthcare as part of its strategy to raise $1 billion and alleviate its debt burden.
This reflects a trend where organizations are reassessing their operational footprints in response to financial pressures. Strategic divestitures are seen as a means for health systems to streamline operations and focus on core competencies. The ongoing transformation of healthcare systems highlights the need for adaptability and strategic foresight in an ever-changing environment.