Divestitures and distressed deals defined hospital M&A in 2024: report

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Dive Brief:

• Last year was a record year for health system divestitures and hospital deals involving a distressed health system, according to a recent report by Kaufman Hall.
• Divestitures “skyrocketed” in 2024, with asset sales accounting for 45 of 72 announced deals, according to the consultancy. The percentage of distressed health systems pursuing M&A also reached new highs, rising from 28% in 2023 to more than 30% last year.
• Notably, “significantly larger organizations” than in years past are seeking deals due to financial distress, with the average deal size of the seller hitting $401 million, according to the report. This signals that financial distress could be “moving up the scale, prompting larger organizations to seek a partner” in 2025, the consultancy said.

Dive Insight:

Although total transacted revenue was high in 2024 — sitting at just below $40 billion — health systems’ deals suggest some are still experiencing turbulence.

More than 62% of announced transactions last year were divestitures. Steward Health Care’s bankruptcy filing and related asset sales contributed to this figure but did not fully explain the trend.

The consultancy also noted changing trends in mega-mergers. Historically, the tie-ups have been between systems of equal size. However, last year saw smaller health systems seek to join larger organizations, such as Nuvance Health’s proposed merger with Northwell Health and Marshfield Clinic Health System’s merger with Sanford Health.

Kaufman Hall said the mega-mergers might not qualify as financially distressed transactions, but they were a trend to watch in 2025.

The analysis comes just weeks after three major healthcare credit ratings agencies — Moody’s Ratings, Fitch Ratings and S&P Global Ratings — gave the nonprofit hospital sector a neutral outlook for the first time in years, signaling some optimism for 2025.

Although Kaufman Hall said their findings indicate health systems’ outlook has improved from pandemic-era lows, there is still an “unevenness of recovery.” Looking ahead, the consultancy expects to see further consolidation in 2025, citing ongoing financial pressures and resource constraints.

Some merger activity will aim to expand health systems’ access to new markets. Last year, for example, Kaiser Permanente launched Risant Health to operate nonprofit health systems. Risant has acquired health systems outside Kaiser’s core California market, including Pennsylvania-based Geisinger and North Carolina-based Cone Health. 

Leadership shakeups could also prompt new thinking about merger and acquisition strategy, according to the report. A growing number of executives will retire this year, Kaufman Hall said.

With the changing of the guard, organizations will consider whether to fill those gaps or perhaps consider new directions, such nontraditional operational models.

“This will drive continued divestitures, but also new partnerships — including joint ventures with partners in key verticals such as behavioral health, imaging, senior living, and labs — that can expand services with a lower capital commitment,” the report said.

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