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Mega mergers, HCA's Utah expansion lead Q3'21 US hospital M&A


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Mega mergers, HCA's Utah expansion lead Q3'21 US hospital M&A

HCA Healthcare Inc.'s expansion in Utah and two sales of healthcare providers with over $1 billion in revenue headlined U.S. hospital M&A in the third quarter of 2021.

Five acute care deals were announced in the three-month period — less than half of the 11 deals in the second quarter, but in line with the third quarter of 2020 and more than the two deals for the same period in 2019, an S&P Global Market Intelligence analysis showed.

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September was the busiest month for deal-making, including HCA Healthcare Inc.'s planned acquisition of five hospitals in Utah from Steward Health Care System LLC.

Though terms of the deal were not disclosed, RBC Capital Markets analysts Frank Morgan and Ben Hendrix estimated that the five hospitals generate annual revenue of between $600 million and $700 million based on bed count. The deal — which is expected to close in the first half of 2022 — would make HCA the second-largest hospital provider in Utah, the analysts noted.

"We believe HCA's better commercial contracting, investments in high-acuity service lines, and efficient operating model will improve margins and cash flow generation over time at these hospitals while enhancing the performance of the Greater Salt Lake network," the analysts wrote in a Sept. 20 note.

HCA told Market Intelligence that the hospital operator could not comment on the transaction beyond the Sept. 20 press release, in which CEO Samuel Hazen called Utah one of the "fastest-growing" areas in the U.S. and said the deal would allow the company to improve its network options for patients.

The Nashville, Tenn.-based company's planned acquisition follows divestitures announced earlier in the year. In May, Piedmont Healthcare Inc. signaled its intent to acquire four of HCA's hospitals in Georgia, and in the same month AdventHealth announced it would acquire Redmond Park Hospital LLC from HCA.

On the home health side, healthcare services company LHC Group Inc. agreed in September to acquire Brookdale Healthcare Services Agencies in 22 states from Brookdale Senior Living Inc. and HCA, which owns a majority stake in Brookdale's home health and hospice unit.

'Mega mergers'

The third quarter featured two "mega-mergers" which consulting firm Kaufman Hall defines as transactions where the smaller partner or seller has average annual revenues of over $1 billion in the form of NorthShore University HealthSystem's acquisition of Edward-Elmhurst Healthcare and Intermountain Healthcare Inc.'s acquisition of SCL Health Medical Group.

The latter deal is expected to create an $11 billion health system made up of 33 hospitals and 385 clinics across six states, while the Edward-Elmhurst and NorthShore merger is expected to create a more than $4 billion health system in Illinois, Kaufman Hall said in an Oct. 6 report.

"We continue to work together toward the finalization of our merger and to deliver on our shared vision of vibrant, community-connected healthcare," a NorthShore spokesperson told Market Intelligence.

The remaining hospital deals announced in the quarter were Dallas-based Affinity Health Partners' acquisition of Williamston Hospital Corp. from hospital system Quorum Health Corp., and Lexington, Tenn.-based Braden Health LLC's acquisition of Decatur County General Hospital.

The trend for a small volume of hospital transactions, but featuring higher-value deals, will continue throughout the rest of the year, Kaufman Hall analysts predicted.

The growth of higher-value deals is likely a result of fewer independent hospitals and an increased emphasis on strategic partnerships, meaning hospitals and health systems are becoming more selective in the organizations they would consider merging with, the report's authors said.

"These pursuits transcend the traditional definitions of scale and market presence and instead reflect the transformative importance of pursuing new business models, thriving on diversification of operations and succeeding in new models of care," they added.