Hospital transactions have trickled in during the first three quarters of 2016. To date, 68 mergers or acquisitions have been announced (64 of them for U.S. hospital or health systems), although there have been many more partnerships, strategic alliances and joint ventures in the same period. For our database, those deals don’t count.
Last year at this time, 79 deals were recorded, and 2015 ended with a total of 102 transactions (96 of them U.S.-based targets). Given the slowing pace of M&A activity we’ve witnessed since the second quarter, we don’t expect a sudden burst of transactions in the fourth quarter that would reach last year’s level.
Spending on the U.S.-only hospital deals in 2016 is approximately $4.5 billion, well below last year’s total of $5.2 billion in U.S. hospital deals during the first three months. The U.S-only total for 2015 was $6.3 billion.
The largest deal for a U.S. hospital target is the recently announced $1.25 billion real estate acquisition of nine acute care hospitals operated by Massachusetts-based Steward Health Care System, LLC, a portfolio company of Cerberus Capital Management. Healthcare REIT Medical Properties Trust, Inc. (NYSE: MPW) was the buyer in this sale/leaseback transaction.
The total value of this deal includes a $1.2 billion investment in the hospital real estate and a $50 million equity stake in Steward. MPT will invest another more than $100 million in capital improvements for the hospitals.
MPT’s interests in the hospitals will be subject to a master lease and mortgage loan arrangements with cross default provisions and backed by a corporate guaranty.
There may be an upside coming for the hospital M&A market, thanks to this deal. The investment sets the stage for Steward to expand nationally, and return the original investment Cerberus made in Steward almost six years ago. The agreement also includes a commitment by Medical Properties Trust to participate in up to the next $1.0 billion of Steward’s hospital acquisitions.
