2018 Hospital M&A Activity Q4
20 Change of Control Transactions
Target Beds: Average 343; Median 241
Target Rev. ($’s MM): Average $386; Median $220
Q4 2018 saw 20 announced transactions:
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- 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
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Calendar year 2018 finished with 109 announced transactions:
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- 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
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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
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- 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
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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:
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- Reposition their overall business strategy
- Improve near-term operating performance
- Deleverage their strained balance sheets
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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
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- 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)
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- 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
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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:
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- 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)
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