Coronavirus didn’t dramatically dampen healthcare M&A in Q2, Kaufman Hall says

Dive Brief:

  • The COVID-19 pandemic did not stall mergers and acquisitions in the second quarter as much as some analysts had originally expected, according to the latest report from consultancy Kaufman Hall. In fact, the group says it expects a “significant uptick in M&A activity to be just ahead of us.”
  • During the second quarter, 14 transactions were announced. That’s a significant slowdown from the first quarter of this year, which saw 29 transactions, but just slightly down from the second quarter of 2019, which had 19. The quarter netted some of the highest figures Kaufman has recorded for average seller size at more than $800 million.
  • For-profit operators made up the majority of announced deals, accounting for nine of the 14 deals. None of the deals included academic health systems or those affiliated with religious entities.

Dive Insight:

The rising caseload of COVID-19 in some areas of the country poses a threat to healthcare providers and hospitals as they tamp down elective surgeries in order to respond to a surge in hospitalizations.

As the pandemic continues to weigh on providers, Kaufman Hall said it expects to see an increasing number of “restructuring, distressed, and bankrupt hospitals.”

“If anything, the pandemic has demonstrated advantages of scale, coordination, and innovation that are likely to strengthen the strategic rationale for future partnerships,” Kaufman Hall said in its latest report on mergers and acquisitions.

Heading into the second quarter, the consultancy expected the pandemic to dramatically dampen mergers and acquisitions. However, thanks to “two transformational deals announced in June, it seems that COVID-19 generated a much less dramatic decline in M&A activity,” Kaufman Hall said.

Those deals include Illinois and Wisconsin-based Advocate Aurora’s proposed merger with Michigan-based Beaumont Health, which would create a system with $17.5 billion in revenue, and Dallas-based Steward Health Care’s acquisition by a group of affiliated physicians.

The pandemic also reignited merger talks between Lifespan and Care New England as the virus forced the two to work together in unprecedented ways.