Year in Review: M&A slows down as the benefits called into question

After several years of rapid consolidation, healthcare mergers and acquisitions lulled in 2019, with several major deals falling apart in the early stages of talks.

In the Midwest, Sanford Health nixed its deal to form an $11 billion system with UnityPoint Health. Partners HealthCare ditched its plan to acquire Rhode Island health systems, dropping its bids to acquire Care New England as well as Lifespan. In Texas, Baylor, Scott & White Health and Memorial Hermann Health System also ended their talks to form a regional powerhouse before reaching a definitive agreement.

“The literature on corporate M&A shows that the savings people thought they were getting from eliminating redundancies haven’t panned out,” said Joe Lupica, chairman of Newpoint Healthcare Advisors. “Both parties can find ways to accomplish virtually all of the goals of integration without transfer of ownership.”

A significant drop in for-profit hospital divestitures has stalled M&A deals, said Jake Aygun, vice president at Ponder & Co. Through the third quarter of 2019, there were only 62 announced transactions compared with 92 for the same period in 2018, down 33%.

“A lot of the for-profit portfolio rationalization has taken place,” he said.

Growing scrutiny by federal and state regulators built some speed bumps, said Ken Marlow, partner at Waller Lansden Dortch & Davis.

Buyers are more selective, said Nicholas Beale, a director for investment banking firm Hammond Hanlon Camp.

“This isn’t five years ago where even if you were struggling you could find buyers,” he said.

Meanwhile, more health systems are opting for more informal partnerships such as clinical affiliations or minority investments.

“There is a shift toward not needing to control everything,” Beale said.