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.

Sanford Health nixed its deal to form an $11 billion system with UnityPoint Health. Partners HealthCare ditched its plan to acquire Care New England as well as Lifespan. And Baylor, Scott & White Health and Memorial Hermann Health System ended their talks to form a regional powerhouse.

“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%.

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

Health systems instead are opting for informal partnerships such as clinical affiliations or minority investments.

“There is a shift toward not needing to control everything,” said Nicholas Beale, a director for investment banking firm Hammond Hanlon Camp.