2018 Hospital M&A Activity Q4

16 Jan


2018 Hospital M&A Activity Q4

20 Change of Control Transactions

2018 Q4 Hospital Merger and Acquisition Transactions

Target Beds: Average 343; Median 241

Target Rev. ($’s MM): Average $386; Median $220

2009 - 2018 Number of Announced Hospital Change of Control Transactions

Q4 2018 saw 20 announced transactions:

        • Announced transactions in Q4 2018 decreased more than 30% from Q4 2017 which had 29 announced transactions. This volume ties Q4 2016 for the lowest volume of announced transaction in a 4th quarter since 2009, trailing the average of 25 transactions from 2009 – 2017
        • Q4 volume was the lowest quarterly volume in the past eight quarters with a difficult quarterly comparison coming in Q1 2019 (Q1 2018 was 39)
        • Overall activity in Q4 was primarily driven by $1B+ revenue regional providers acquiring small regional competitors, in many cases from FPs attempting to deleverage and shed underperforming assets
        • FPs were the acquiring party in only 15% of transactions, and FPs represented 30% of sellers

Calendar year 2018 finished with 109 announced transactions:

        • This total represents a slight decrease from 2017’s total of 118 announced transaction, which was a five-year high. The transaction volume for the year was above the average of 102 transactions/year for the past decade.
        • Target hospital median revenue and bed metrics are largely unchanged from 2017

2013 - 2018 Number of Announced Transactions

Overall FP acquisition activity is meaningfully down; FP operators were the acquiring party in less than 18% of transactions in 2018, representing the lowest percentage over the past decade

        • 10-year average for transactions with FP acquirers is 28%
        • 2018 transactions with FP acquirers were down over 1/3 from 2017
        • Except for HCA and one JV stake acquired by LifePoint, publicly traded FPs were absent from acquisitions in 2018

In fact, FP publicly traded hospitals have not only pulled back from their pace of acquisition activity, they have been actively selling many of their non-core assets in an effort to:

        • Reposition their overall business strategy
        • Improve near-term operating performance
        • Deleverage their strained balance sheets

Continuing a multi-year trend, the heightened pace of FP divestiture activity ramped up in 2018; FP operator divestitures made up nearly 35% of transactions in 2018, which is the highest level in the past decade

        • Over a 20% increase in FP divestitures from 2017
        • For the past 10 years, FP divestitures were 20% of all transactions (2018 was 175% of the long-term average)

2015 - 2018 For Profit Hospital Sales and Acquisitions

        • Community Health Systems announced nearly 20 hospital divestitures over 11 transactions in 2018, with most of the announcements concentrated in the first half of the year
        • Tenet Health had announced at least one hospital divestiture for the past six quarters before not announcing a divestiture in Q4 2018

In 2018, there were 10 “mega-mergers” in which the target or resulting joint operating company had over $1B in total revenue, which matches the total from 2017

AMCs were represented in 19% of transactions in 2018, which is in line with the 10-year average

Top 12 most active states by transaction volume over the last five years are listed below; states that have recently seen notable increases in announced activity in 2018 are:

        • Florida – Cleveland Clinic acquisitions (two), consolidation of joint ventures or JOAs (Ascension/Ardent and Orlando Health/South Lake), CHS exit of Munroe
        • Louisiana – divestitures by publicly traded FPs (four), Ochsner’s acquisitions (three)
        • Tennessee – divestitures by CHS and QHC (three), Huntsville Hospital entering state, Rennova entering acute care market (two)

2014 - 2018 Hospital Transaction Volume by State