Report: COVID-19 Slows M&A Activity, Highlights Opportunities

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Key Insights

  • The COVID-19 pandemic has reduced M&A activity, but not as significantly as anticipated.
  • Experts project M&A volume will increase in Q3 and Q4.  
  • The pandemic has highlighted the need for partnerships that drive “scale, coordination, and innovation.” 

M&A Activity Down, but Not Drastically

Despite predictions that COVID-19 would “affect M&A activity in Q2,” a recent quarterly report from Kaufman Hall found that “COVID-19 generated a much less dramatic decline in M&A activity, relative to underlying performance measures.” 

Although there were only 14 M&A transactions announced in Q2, down from 29 the previous quarter, the slowdown is not as dramatic when compared to the 19 M&A transactions in Q2 of 2019. Furthermore, the report noted that, “notwithstanding the impacts of COVID-19, deals did move forward. This quarter saw one of the highest figures for average size of seller by revenue we have ever recorded, at more than $800 million.” For-profit hospitals and health systems drove the majority of M&A activity. 

M&A May Rebound in Second Half of the Year

Despite the reduced activity, “experts expect deal volumes and value to rebound in the second half of the year,” Modern Healthcare reported. “There is a robust amount of private equity capital and those in the provider space that have lines of credit to be acquirers and the capacity to handle turnarounds will have opportunities to acquire divestitures in the latter half of the year,” Nick Donkar, Health Services Deals Leader at PricewaterhouseCoopers, told the publication. 

This optimism is shared by Kaufman Hall: “If anything, the pandemic has demonstrated advantages of scale, coordination, and innovation that are likely to strengthen the strategic rationale for future partnerships. On the other end of the spectrum, we expect an increasing number of restructuring, distressed, and bankrupt hospitals. As a result, we do anticipate a significant uptick in M&A activity to be just ahead of us, as the industry recommences its transformation.”

As M&A ramps up and healthcare entities form strategic alliances, it is critical that these high-dollar deals don’t “overshadow another crucial partnership, that between employed and independent community physicians,” says Frank Letherby, CEO of Privia Medical Group — Florida. 

“Alignment between employed and independent physicians grows increasingly important as we move toward value-based care. How can we improve alignment to benefit physicians, health systems, and — most importantly — customers?” Letherby suggests health system leaders leverage strong governance, data- and analytics-driven decisionmaking, and robust technology to meet the needs of health systems’ customers.

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