M&A deals in the health care space have declined steadily since the pandemic began. Up to now, the drop in total deal numbers has been partially offset by the growing percentage of mega deals involving target companies of over $1 billion. But health care M&A might have bottomed out in the first quarter of 2022 in terms of both deal volume and size, according to a new report from financial data analysis firm Kaufman Hall.

Q1 Healthcare M&A Data 

There were only 12 reported health care M&A deals in Q1, the lowest total since Kaufman Hall began tracking these transactions back in 2016. There were also no mega deals in the quarter to take up the slack the way there has been since the decline in deal volume began. Thus, in four of the 12 announced transactions, the seller or smaller company (which we’ll refer to as “seller”) had average revenues below $100 million. Another thing Kaufman Hall found “notable” during the quarter was the high percentage of deals (7 out 12) in which for-profit health systems were the seller; there was only one transaction involving a for-profit acquirer.

Figure 1: Number of Q1 Announced Transactions by Year, 2016 - 2022

Source: Recreated from Kaufman, Hall & Associates, LLC "M&A Quarterly Activity Report: Q1 2022" with permission.

In a departure from previous pandemic patterns, deals were also smaller. Thus, while average seller size during all of 2021 was $619 million (a historic high for Kaufman Hall), average seller size was $246 million in Q1 2022.

Average Seller Size ($s in millions), Q1 2022 Compared with Year-End Averages, 2016 – 2021

Source: Recreated from Kaufman, Hall & Associates, LLC "M&A Quarterly Activity Report: Q1 2022" with permission.

Takeaway

While the number of healthcare M&A deals has been in steady decline since the pandemic began, more of the deals that have come to fruition have been mega transactions. But the falloff in Q1 2022 involved both deal volume and size. Kaufman Hall predicts that “this quarter’s results will prove to be an anomaly,” noting that “the pandemic has affirmed the imperatives of scale.” Here’s a summary of the key new M&A diagnostic deals that were announced and/or closed in April 2022:

Mergers, Acquisitions, & Asset Sales