Q2 2023 saw a significant upsurge in the number of announced transactions, 20 in total, compared to only 15 in Q1 2023, marking a substantial rebound in activity levels, bringing the quarter in line with pre-pandemic standards. The rise wasn't just limited to the number of transactions; it also reflected in the total transacted revenue for the quarter.

It is worth noting that while the average size of the smaller parties involved, measured by their annual revenue, remained elevated, the impact of the three "mega mergers" announced during the quarter was somewhat diluted. These "mega mergers" involve transactions where the seller or smaller party has annual revenues exceeding $1 billion.

The three notable "mega merger" transactions that took place in Q2 2023:

  1. On April 11, 2023, Froedtert Health and ThedaCare revealed their intentions to merge and operate as a single organization in Wisconsin.

  2. On April 26, 2023, Kaiser Foundation Hospitals and Geisinger Health joined forces to establish Risant Health, a not-for-profit organization. Geisinger became the first member of this new entity, created by Kaiser Foundation Hospitals.

  3. On May 31, 2023, BJC HealthCare and St. Luke's Health System signed a non-binding letter of intent, signaling their plan to create an integrated, academic health system based in Missouri.

These "mega mergers" added considerable weight to the overall transaction landscape in Q2 2023, indicating a dynamic and evolving industry. With the increased number of transactions and the ambitious consolidation moves, the healthcare sector showed resilience and adaptability despite the challenges brought on by the pandemic.

Managing director and leader of partnerships, mergers and acquisitions at Kaufman Hall Anu Singh says he expects to see more hospitals making deals in the months ahead.

“I expect that the underlying nature of industry transformation is going to force it,” says Singh, according to a Chief Healthcare Executive interview.

“There are organizations that are looking for complementary resources and capabilities …  there are ones in the middle who have maybe some increased concerns about their long-term viability of remaining independent,” he says.

The predominant focus on expanding current capabilities or accessing new ones in numerous major transactions signifies a paradigm shift in how scale is perceived in the prevailing landscape of transaction activities. While traditional scaling methods have provided incremental gains through consolidating health systems in adjacent geographies, the healthcare industry has undergone a transformative turning point over the past few years.

Several factors, including escalating labor expenses, the shift of care towards outpatient settings, and dwindling operating margins, have exerted financial pressure on health systems. To address these challenges, health systems are now organizing regional markets, strategically positioning themselves with complementary capabilities to offer expanded and well-coordinated care within integrated systems.

BJC HealthCare and St. Luke’s Health System have been long-term partners within the BJC Collaborative, jointly working on cost-saving initiatives. Their merger aims to create a stronger financial foundation, empowering the combined systems to make substantial investments in their teams, advanced technologies, data support for providers and caregivers, and ultimately, the improvement of community health.

Similarly, Vandalia Health in West Virginia, formed by the merger of Mon Health and Charleston Area Medical Center in 2022, is actively building a statewide network. They have recently announced a non-binding letter of intent to include Davis Health System, located in West Virginia’s Potomac Highlands region, into the Vandalia Health network. This move seeks to further enhance their integrated approach to healthcare delivery and serve a broader population with improved services and outcomes.

In essence, investing in the development of distinctive capabilities not only bolsters an organization's individual standing but also creates opportunities for fruitful partnerships and collaborations in the ever-changing healthcare landscape.