2018 M&A in Review
The Growth of Mega Mergers
Strategic Insights: Mega Mergers
As large regional health systems emerge, hospitals and health systems should evaluate opportunities to:
  • Pursue expansion in faster growing markets or markets with stronger demographics.
  • Seek out partners that bring strong operational capabilities or innovative clinical models to their markets.
  • Solidify the platform required to engage and remain relevant to consumers as the healthcare landscape shifts in terms of both competition and payment models.
Movement across state lines and multiple geographies to form or expand a regional system is a characteristic of most of the mega mergers announced in 2018.1 These transactions include:
That so many of 2018's mega mergers involve the combination of systems from different—though often contiguous—geographies signals the desire of health system leaders to expand their organizations into new markets, or to bring in a partner from an outside market. Health system leaders may wish to expand their organization into new markets for several reasons. They may feel that the organization has maximized its opportunities for expansion in its original market. They may see opportunities in a new market that has stronger demographics or higher population growth than the organization's original market. The organization may have developed strong operational capabilities or innovative clinical care models that leaders believe could be successfully exported to a new market. For health system leaders looking for an acquisition partner from outside of their organization's home market, considerations may include the desire to improve operations within the home market, or a need for additional capital to better compete within the home market. For organizations on both sides of the deal, the creation or expansion of a regional health system is driven by the opportunity to gain greater synergies in operational efficiencies and clinical excellence through increased scale, without further consolidation in the merging systems’ original markets. To the extent operational and clinical gains are realized, these mergers have the potential to enhance competition within these markets. And with the emergence of new healthcare competitors, discussed in detail later in this report, there is a new imperative for growth to obtain the expertise, data, and technology needed to engage and remain relevant to consumers. Finally, the slow but steady movement toward population health, in which health systems assume risk for the health of attributed patient populations, is another factor in the desire to increase market presence and penetration. Effective risk management depends on a health system’s ability to improve cost efficiencies, care efficacy, and care management across the continuum, which may require both horizontal and vertical integration to achieve.
  • Bon Secours/Mercy
  • LifePoint/RCCH HealthCare Partners
  • Atrium Health/Navicent Health
  • Western Connecticut Health Network/Health Quest Systems
Another announced transaction—Baylor, Scott & White’s planned merger with Memorial Hermann—aims to bring together two Texas-based systems. But Texas is essentially a region onto itself, with several distinct markets anchored by metropolitan areas that are geographically dispersed across the state. This merger will combine Dallas/Fort Worth and central Texas markets with the Houston market.

The trend toward mega mergers has been paralleled by and has influenced the steady growth in the size of M&A transactions overall. As Figure 2 illustrates, the average size of a seller by revenue has grown at a CAGR of almost 14 percent per year since 2008, and reached a new high of $409 million in 2018.
1 - For purposes of this analysis, “mega merger” is defined as a merger between two organizations that each have annual revenues of $1 billion or more.
©2018 Kaufman, Hall & Associates, LLC
2018 M&A in Review
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