Hospital deals increased in size and—though not hugely—in number last year, my colleague Vince Galloro reported in the magazine's 17th annual review of merger-and-acquisition activity. Eighty-nine deals including 227 hospitals were announced, pending or closed in 2010, according to Modern Healthcare's yearly report.
More deals may flourish this year, the magazine reported, an expectation also voiced by Fitch Ratings analysts in the agency's yearly outlook for the healthcare sector.
Fitch said last week the coming year will see dealmakers make smaller transactions with cash built up during recent favorable debt markets. Ratings analysts said activity is expected as buyers make acquisitions to offset weak revenue growth. The persistently high unemployment rate—which Fitch said it expects to remain about 9% this year and around 8.7% in 2012—will continue squeeze demand for medical care and prices, the outlook noted.
However, the outlook for for-profit providers is positive, the report said. For-profit operations are expected to be stable despite the economy because of hospital efforts to control costs and expand profitable services. The sector is also expected to continue to see more complex patients and strong commercial insurance trends.
Analysts expect strategic dealmaking, the report said, in part because for-profits refinanced debt last year under favorable terms.
“Fitch expects companies to continue to target acquisition of single-hospital or small hospital systems in order to increase market share and build leverage in pricing negotiations with commercial health insurers,” the report said. “There is also potential for larger transactions which are transformative to the industry landscape, as evidenced by Community's recent unsolicited bid to buy Tenet.” Read more on Community Health System's offer for Tenet Healthcare Corp.
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