In our 2022 year-end report, we noted that M&A activity had regained momentum following a two-year slowdown in the wake of the Covid pandemic. This momentum continued through 2023 with 65 announced transactions, up from last year’s total of 53. Sixteen of the 65 transactions were announced in Q4.

One significant change, however, was the increase in the percentage of financially distressed organizations that sought a partner in 2023. Hospitals and health systems faced one of their most challenging years in 2022, with median operating margins staying in negative territory throughout almost the entire year. Those financial pressures emerged as a key driver of M&A activity in 2023, with financial distress cited as a factor or otherwise evident in 28% of announced transactions, compared with 15% in 2022 (Figure 2).

Financial distress is one factor driving the continued climb of the median size of smaller parties by annual revenue during 2022 and 2023 compared to historical trends; the median size has doubled since 2019 (Figure 3).[1] As noted later in this report, we are seeing an increasing number of larger systems citing financial distress, a change from the historical concentration of distress in smaller hospitals and health systems. At the same time, we are seeing the percentage of transactions in which the smaller party has a credit rating of “A-” or higher holding steady, as shown below in Figure 8. This underscores that fact that creditworthy organizations and community hospitals have also recognized the need for a strategic partner.
“Mega mergers”—those transactions in which the seller, or smaller party, has annual revenues in excess of $1 billion—continued to play a significant role. As in 2021 and 2022, mega mergers represented more than 10% of the total announced transactions in 2023 (12% in 2023, compared with 15% in 2022 and 16% in 2021).

The Year in Numbers
The increase in the percentage of announced transactions that involved a financially distressed partner—rising from 15% in 2022 to 28% in 2023 and representing the highest percentage since this data has been tracked—reflected the ongoing operational and financial pressures many hospitals and health systems continue to face (Figure 2).
The total number of announced transactions in 2023 built on the momentum we saw in 2022, with 65 announced transactions in 2023 compared to 53 in 2022 (Figure 5).
While below the historic high of 2022, the average size of the smaller party by annual revenue in 2023 remained high at $591 million, comparable to the $619 million recorded in 2021. For the last three years (2021, 2022, and 2023), average size of the smaller party has significantly outpaced figures from the preceding nine (2012 – 2020) (Figure 6).

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