Hospital M&A hit record low in 2022 but value nearly doubles

For instance, Advocate Aurora Health, jointly headquartered in Downers Grove, Illinois, and Milwaukee, and Atrium Health of Charlotte, North Carolina completed a merger last month to create Advocate Health, a $27 billion health system with 67 hospitals in six states.

Some regional systems pursuing mergers have renegotiated their deals seeking more favorable terms, said Jordan Shields, a partner at Juniper Advisory, an M&A advisory firm focused on nonprofit healthcare transactions. “Not-for-profit hospitals have gotten a little bit overreliant on investment returns, leading to some renegotiation. But the midsize and large systems remain really growth-oriented,” he said. “I believe the number of closed transactions in the first half of 2023 are going to be up significantly.”

Among those systems is Evansville, Indiana-based Deaconess Health System and its affiliate Deaconess Illinois, which acquired four southern Illinois hospitals from Quorum Health, a for-profit chain based in Brentwood, Tennessee. Another is Carle Health, a five-hospital system based in Urbana, Illinois, that is seeking to acquire three Illinois hospitals from Des Moines, Iowa-based UnityPoint Health, Shields said.

While the number of deals may rebound this year, transaction volume isn’t expected to return to the 120 range seen in 2017 and 2018.

Hospital merger and acquisition activity is not what it was like in the recent past because of a more aggressive regulatory environment, especially at the state level, said Neil Olderman, a partner at the law firm Faegre Drinker Biddle & Reath. For example, Minnesota Attorney General Keith Ellison (D) is holding public meetings about the proposed $14 billion merger between Sioux Falls, South Dakota-based Sanford Health and Minneapolis-based Fairview Health Services.

In addition, many prospective targets that were financially healthy suffered during the COVID-19 pandemic, Olderman said. That, in part, has lead to more joint ventures and strategic partnerships rather than outright acquisitions, he said. “Many deals have been terminated during the diligence phase before definitive documents were signed, where before there was more of an appetite to push ahead,” he said. “Now we see a trend toward finding a more perfect fit.”