Hospital M&A Activity Plummets Amid Market Uncertainty

In a stark departure from recent trends, hospital merger and acquisition (M&A) activity has seen a significant downturn in the first quarter of 2025, according to a new report from healthcare consultancy Kaufman Hall. The slowdown in deal-making is attributed to broader market volatility and economic uncertainty, mirroring trends across various industries.

Sharp Decline in Deal Volume and Size

The healthcare sector witnessed only five hospital and health system M&A deals during Q1 2025, a dramatic decrease from the 20 deals announced in the same period last year. This reduction in activity is reminiscent of the slowdown observed during the COVID-19 pandemic.

Notably, the deals announced were smaller in scale compared to recent quarters. The average size of the smaller party by annual revenue was $279 million, approximately half the average seller size seen in Q1 2024. Additionally, no mega-mergers—defined as transactions where the smaller party has annual revenues exceeding $1 billion—were reported during this period.

Distressed Facilities Dominate Deal Landscape

The majority of transactions announced in Q1 2025 involved distressed healthcare facilities. Four out of the five proposed deals were centered around struggling organizations, with three of these being divestitures or portfolio repositioning efforts. This trend suggests that health systems pursuing M&A in the current climate are doing so out of necessity, primarily to rescue financially troubled entities.

Anu Singh, managing director at Kaufman Hall, commented on the situation: "The low number of M&A transactions involving hospitals and health systems mirrors global trends across industries. Economic uncertainty around tariffs and healthcare policy has likely contributed to a relatively quiet quarter."

Market Uncertainty and Future Outlook

The report draws parallels between the current market conditions and the uncertainty faced during the COVID-19 pandemic. However, it also notes that the appetite for M&A activity remained strong following the pandemic-induced slowdown.

Kaufman Hall suggests that a revival of M&A activity in 2025 will likely depend on the restoration of certainty regarding the nation's economic direction and the financial stability of the healthcare sector. The consultancy predicts that health systems with more stable finances may require additional time before returning to "more normal" M&A behavior, waiting for greater market certainty before pursuing deals this year.

The report also highlights a growing divide between top and bottom performers in the hospital sector. As of February, there was a 44.6% gap in operating margin performance between 5th and 95th percentile hospitals, underscoring the financial pressures faced by struggling facilities.