February 9, 2024

Financial distress increasingly prevalent in health system M&A deals

This week’s graphic highlights data from Kaufman Hall’s recently released 2023 Hospital and Health System M&A Report on the current dynamics in health system mergers and acquisitions (M&A) activity. After a slowdown during the pandemic, 2023 saw an uptick in M&A activity with 65 announced transactions, the most since 2020. Continuing the trend of the past two years, the number of announced “mega mergers,” in which the smaller party had at least $1B in annual revenue, represented more than a tenth of total announced transactions. However, the average size of mergers fell in 2023, as financial distress emerged as a key driver of M&A activity. The percent of mergers involving a financially distressed party spiked to nearly 28 percent in 2023, almost double the level seen in prior years. CARES Act funding had buoyed some health systems’ balance sheets through the pandemic, but with the end of federal aid, more systems needed to seek shelter through scale. With the median hospital operating margin still barely hitting two percent, we anticipate this heightened level M&A activity to continue in 2024 as health systems search for stronger partners that can help them stabilize financially. 

For more about hospital and health system M&A trends, listen to Gist Healthcare Daily’s recent interview with Anu Singh, Managing Director and Leader of Partnerships, Mergers, and Acquisitions Practice at Kaufman Hall. 

2023 Mergers Review