Winding down to the end of 2019, it’s a good time to take stock of this year’s U.S. hospital M&A market. In mid-November, we have 70 transactions on the books, up 16% compared with the same period in 2018.
But 2019 M&A activity has taken a decidedly different path from the deals of 2018. One striking statistic: Just half the number of beds have traded hands in 2019. By this time in 2018, the bed-count in target hospitals was 25,309. In 2019, there are only 12,901 (-49%).
In 2018, a few major systems changed hands, which pushed up the bed total. The largest was Apollo Global Management‘s $5.6 billion take-private deal for LifePoint Health (formerly NASDAQ: LPNT), which had approximately 9,300 beds in nearly 90 hospitals. Then there was Ascension‘s acquisition of Presence Health, one of the largest Catholic health systems in Illinois, with eight hospitals and approximately 2,000 beds.
This year’s largest deal by bed count (so far) was Medical Properties Trust‘s (NYSE: MPW) $1.55 billion acquisition of 16 Prospect Medical Holdings hospitals with nearly 2,400 beds. The closest deal to that was the sale of three Verity Health hospitals (938 beds) in California, acquired by KPC Healthcare for $610 million during bankruptcy proceedings.
So the targets are smaller this year than last. Thirty hospitals with 100 or fewer beds have found new partners in 2019 and nine of them are standalone critical access hospitals. In 2018, just 20 hospital deals featured hospitals with 100 or fewer beds, although nine of those were also critical access hospitals.
There are also more financially distressed hospitals involved in mergers this year. Sixteen targets reported net income losses in 2019’s transactions compared with 12 in 2018. The reality is that smaller standalone hospitals are facing reality and joining larger regional systems for the financial and operational security they can provide. We don’t formally track hospital closures, but anecdotally, those announcements have risen this year, as well.
The number of REIT deals jumped in 2019, to seven transactions totaling almost $2.5 billion, thanks to three deals announced by Medical Properties Trust. Only two of the hospital deals in 2018 were made by REITs, with one disclosed price of $23 million.
We’ll be keeping score through the end of 2019, of course, and will report our findings early in 2020. All the results will be reported in The Health Care Services Acquisition Report, scheduled to be published in March 2020.