Steward Health Care Bankruptcy Spurs Robust M&A Dealmaking in Q3

Hospital mergers and acquisitions reached a seven-year high for third quarter activity, a new report finds.

One of the more measurable effects of the Steward Health Care bankruptcy on the industry is being seen in hospital dealmaking.

Steward hospitals were involved in 11 of the 27 M&A transactions in the third quarter, which was the most for a quarter this year and in line with pre-pandemic levels, according to a report by consulting firm Kaufman Hall.

The transaction volume also represented the most deals made from July through September since Q3 2017. When excluding the 11 Steward sales, the 16 remaining transactions are still around the same levels for Q3 in 2018 (18), 2020 (19), and 2023 (18).

In terms of total transacted revenue, the quarter brought in $13.3 billion, the highest figure Kaufman Hall has recorded for a Q3 over the past eight years. However, the sheer volume of deals brought down the average seller size from a historic $984 million in Q2 to $492 million in Q3, bringing it closer to recent year-end averages.

Four “mega mergers,” or deals in which the annual revenue of the seller or smaller party topped $1 billion, took place in the quarter. One of those featured Steward hospitals, with Health Care Systems of America acquiring eight facilities in Florida, Louisiana, and Texas.

The other three transactions that qualified were Orlando Health’s purchase of Alabama-based Brookwood Baptist Health from Tenet, Prime Healthcare’s acquisition of eight (and eventually nine) Ascension hospitals in Illinois, and the merger between Sanford Health and Marshfield Clinic.

Several of the deals completed in Q3, including many of the Steward sales, illustrate the impact market conditions have on completing transactions, Kaufman Hall stated. Whereas an acquisition like the one by Orlando Health represents an attractive asset going to a regional system eager for expansion, the sale of Prospect Medical Holdings’ Crozer Health to real estate firm CHA Partners highlights the difficulty of divesting in less favorable markets.

Other M&A trends continue to include portfolio realignment as larger systems exit unprofitable markets and refocus efforts in core regions, as well as systems expanding into new markets to widen their reach.

“While the increasing number of transactions in Q3 2024 is getting us back to a normal level of activity, we are observing various challenges and opportunities in the market,” Anu Singh, managing director and Mergers & Acquisitions practice leader for Kaufman Hall, said in a statement. “The motivations for entering into transactions and partnerships vary. As we are seeing the number of strategic transactions accelerate, we are also seeing some organizations that face financial challenges are struggling to find a partner.”

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