Two weeks ago, I noted the heightened M&A activity across the nation and here in Georgia for hospitals. Other bloggers on HealthFlock like Mark Reiboldt have also noted the expected wave of consolidation in a recent post. With so much talk about the topic, I think it worthwhile to pause and ask ourselves what value consolidation brings to our industry. From my vantage point, I have heard some argue that this is desperately needed for entity survival; others loudly state that it’s a fade and will inevitably lead to poor returns and future divestitures, as seen by failed mergers in other industries.
To give an opinion, I’ll first note a few reasons why we’re seeing increased M&A activity in the industry. According to in-depth analysis, The Advisory Board Company has claimed that five forces are responsible for this trend (to which I would generally agree):
- Favorable Market Environment (e.g. low interest rates ease access to capital)
- Increased Revenue Pressures