Of Pasta and Predictions…M&A Insights From 15 Industry Experts

Asking experts about the state of healthcare mergers and acquisitions in a COVID-19 world is like asking foodies where to get the best gnocchi. (Why did we pick gnocchi for this? No clue. But it is delicious.) Everyone has a different pick. But you’ll hear similar themes.

With all the upheaval taking place in healthcare, we set out to understand what’s happening – and going to happen – with hospital consolidation and partnerships in the pandemic era. Whether or not healthcare providers join forces has implications for every aspect of the industry – access to care, supply chain management, staffing and more. The trend towards consolidation was a steady one prior to March. As the crisis wore on, the assumption seemed to be that we would see more transactions as distressed providers looked for a partner to keep them afloat and stronger organizations looked to scale. But how would it take place?

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To get at that, we asked 15 of our friends in the legal, financial, strategic planning and management consulting sectors two questions:

  • When will we see the pace of transactions pick up?
  • What are the biggest barriers to a deal today?

We heard a range of responses and reasoning and distilled them to a few core ideas.

When it came to timing it was an even split:

  • Already seeing it

  • Later this year

  • It depends

As far as the factors that will affect the timelines, we heard:

Availability or lack of cash/debt
Revisions to deal terms – what are “market prices,” these days?
(Under)performance of for-sale assets relative to historical levels
Boards taking the conservative approach
All-around “COVID uncertainty”

Specific barriers to a deal today include:


Lack of favorable terms, capital sources being “choosy”


Has COVID-19 permanently changed valuations?


Leadership focused on operations out of necessity


Rethinking long (and near)-term priorities


It’s hard to sell a hospital via Zoom


Action from regulatory bodies, especially around the use of COVID-19 relief funds

And finally, a few interesting, somewhat miscellaneous notes:

  • There’s a difference between “activity” and “close.” Just because a deal may be considered doesn’t mean it’ll happen, even today.
  • Distressed hospitals are their own animal. They’re a distinct category when it comes to timing and factors that could affect a deal (for good or bad).
  • Larger systems may be able/willing to hang on and wait to make a move…
  • …But there’s likely some game theory going on: “If we don’t act, someone else will.”
  • Finally, despite all the changes that have happened, the strategic rationale for a deal hasn’t. Healthcare providers still find value in scale, coordination and innovation.

To get the verbatim skinny, take a look at the full set of responses below (ordered alphabetically by organization):

Angela HumphreysBass, Berry & Sims PLC

Angela Humphreys

Chair, Healthcare Practice Group and Co-Chair, Healthcare Private Equity Team

When will we see the pace of transactions pick up?

We are already are seeing an uptick. There were a number of transactions in process pre-COVID that temporarily were put on hold, especially transactions in the provider space involving elective procedures. Now that those procedures are resuming, buyers are picking up where they left off, albeit with revisions to deal terms, including contingent payments, increased rollover equity and, in some cases, seller financing.

What are the biggest barriers to a deal today?

I would say there really are two. The first is the lack of availability of debt on favorable terms. The second is the inability to meet in person. Zoom is great, but before a buyer pays a seller millions of dollars and a seller takes on a new business partner, the parties still want to look each other in the eye and shake hands (or at least fist bump). We have had transactions where that is the single gating item to closing.

When will we see the pace of transactions pick up?

It is hard to say that the volume of deals will pick up in light of COVID-19 in aggregate. Deal flow is driven by the peculiar characteristics of the buyers and sellers in this market. Sellers who are in a position to wait out the impact of COVID will likely do so in order to avoid any purchase price adjustments or earnouts associated with poor performance in the Spring and Summer of 2020. Sellers who need the cash or are afraid they are going to miss a window of opportunity are more likely to go forward with a deal now. Buyers with substantial cash reserves are in full swing – some of the competition for any given deal has been sidelined by the fact that not every buyer has ready access to cash or has the stomach to pay almost full price for an asset that is underperforming compared to historical levels.

What are the biggest barriers to a deal today?

The current deal impediments involve the ability to reach a price due to the competing views between buyers and sellers on the extent to which the COVID impact is merely temporary. There are some buyers who feel that there may be a “new normal,” and that this “new normal” will not reflect historical profit margins. Also, some buyers are skittish about COVID related risks – such as risks associated with regulatory actions to enforce the “terms and conditions” attached to the receipt of provider relief funds, liabilities that employers may face for subjecting their employees to risks associated with exposure to COVID, and liabilities associated with taking PPP loans. Also, capital sources are being more choosy about which deals they are willing to finance in light of the uncertainty posed by the pandemic. Finally, delay is the enemy of all deals – and to arrive at an appropriate risk allocation in the pricing discussions and purchase agreement creates delay.

Chris ReganChris Regan

Managing Director

Rob YorkRobert York

Director, Value-Based Care Practice Leader

Harrison BurnsHarrison Burns

Associate Principal

When will we see the pace of transactions pick up?

While the volume of hospital/health system M&A transactions has slightly decreased compared to this point last year, there have still been several major recent announcements (e.g., Advocate Aurora Health’s proposed merger with Beaumont Health). We expect M&A activity to continue in the near-term, although we may not see deal volume commensurate to previous years for another 6-12 months, as many Boards are hesitant to make major commitments due to ongoing surges of COVID-19, economic uncertainty, and the fact that we are entering election season.

What are the biggest barriers to a deal today?

The hospital/health system segment of healthcare has always carried a good amount of operating risk. The emergence of COVID-19 has caused significant market volatility and displacement across the US which has only added to this operating risk profile. This latest disruption will motivate many health systems to reevaluate their partnerships strategy, reprioritize their target partners, and rethink timing and approach for engaging these organizations. We have already seen a few deals that were post-Definitive Agreement stage be called off during this period, as well as new deals announced as a result of this effort.

Due to pausing non-essential services and other shut-downs that have impacted the provider segment, many organizations now face considerable financial constraints and a broader slate of capital requirements and higher priority commitments (e.g., solidifying their physician base). These challenges will likely lessen the Board’s appetite to take on added business and financial risks including M&A over the next 6-12 months.

With that said, there are still many health systems/hospitals that were weakened but are still in a position of strength and see this time as an opportunity to explore partnership options from both a sell-side and buy-side perspective. At a minimum, every organization should be evaluating how their situation and market options have changed in light of COVID-19. This presents a game theory situation – i.e., “if we choose to pause on a partnership, another may choose to act” – and there are pros and cons to consider in both scenarios.

Given the above factors, we may see an increase in looser affiliation models (e.g., JVs, contractual arrangements, etc.) which are easier to complete and can still deliver significant short-term benefits and serve as a glide path to a more integrated model down the road.

Jordan ShieldsJuniper Advisory

Jordan Shields

Managing Director

When will we see the pace of transactions pick up?

Transactions that had paused in the Spring are getting back on track and will begin closing in the coming months. We will see an increase in distressed transactions this fall, especially as Medicare Accelerated and Advanced Payment loans start coming due next month. Financially strong organizations that realized through COVID-19 that they would be stronger clinically as part of a system are beginning processes now and we can expect those transactions to begin closing late this year into next.

What are the biggest barriers to a deal today?

In areas with increasing COVID-19 volumes, management is rightly focused on operations, where a year ago advancing the transaction would have gotten more timely attention. Another challenge is that buyers are moving more slowly than a year ago. Some buyers have decided to get their clinical and financial footing before expanding their acute care footprints and are passing on opportunities that they likely would have pursued a year ago.

Rex BurgdorferJuniper Advisory

Rex Burgdorfer

Managing Director

When will we see the pace of transactions pick up?

There are still over 1,750 hospital companies (systems + independent facilities) with an average of only ~90 transactions per year occurring over the last 25. The 10 largest companies together comprise less than 20% of the industry. So consolidation is occurring slowly and we’re still probably in the early innings.

What are the biggest barriers to a deal today?

Buyers are having difficulty assessing acquisition targets in such an unstable environment. The operational impacts are dynamic making it hard to normalize or adjust performance measures to evaluate combination synergies.

SinghKaufman, Hall & Associates, LLC

Anu Singh

Managing Director and Leader of the Mergers, Acquisitions & Partnerships practice

When will we see the pace of transactions pick up?

We saw some leading indicators at the end of the second quarter that hospitals and health systems are moving beyond the immediate impacts of COVID-19 and can focus again on longer-term strategic initiatives. These included two large, transformational transactions and a resumption of talks between two systems whose collaboration during the first COVID-19 surge brought them back to the table. We anticipate that we will see more discussions that began pre-pandemic moving to definitive agreements or closure in the remaining quarters of the year. And we look for a resumption, or even an acceleration, in the pace of new transactions as hospitals and health systems reposition themselves for the post-pandemic future.

What are the biggest barriers to a deal today?

The underlying strategic rationale for most deals has not changed and may have in fact strengthened as response to the pandemic has demonstrated the advantages of scale, coordination, and innovation. The greatest impediment to moving forward is resources. Hospitals and health systems have suffered disruption to their operations on a scale that few healthcare leaders have experienced before. They are being pushed to their limits and are sometimes lacking the bandwidth required to give strategic paths forward through mergers, acquisitions, or other partnerships the attention they deserve.

When will we see the pace of transactions pick up?

I believe transaction activity in healthcare will be on the rise, but before that can occur, buyers and sellers need to have some confidence that the COVID-19 crisis has passed. Organizations that were struggling before the impact of the virus are going to be in need of the lifeline of a sale transaction to be able to survive. Those entities that were strong before the crisis are in a good position to execute on strategies to consolidate. However, buyers will be reluctant to take on the additional risks of acquisition targets until there is evidence that the business has stabilized. We anticipate that it may be year-end or next spring until that stabilization is evident.

What are the biggest barriers to a deal today?

The biggest challenge for successful M&A transactions going forward will be valuation. Will it be appropriate to value businesses on the basis of revenues/earnings/margins that were in place before the COVID-19 crisis? Or have the events of the last few months permanently changed the nature and/or frequency of people’s access to the healthcare system? There are mechanisms that buyers and sellers can utilize to bridge gaps in valuation, but the mechanisms can also lead to significant disputes post-closing.

When will we see the pace of transactions pick up?

Transactions in the health care industry already are picking up. Health care providers that were ahead of the curve (i.e., those focused on telehealth and home delivery of good or services services) are of particular interest to financial investors. They also are being chased by other providers which are attempting to adapt their care delivery model to the post-COVID world. Many providers which fared less well in the pandemic already have evaluated their strategic options and are exploring partnership opportunities with larger organizations which are able to provide stability and capital.

What are the biggest barriers to a deal today?

Valuation is the biggest challenge currently. Health care providers that had strong track records of financial performance before the COVID-19 pandemic often view the pandemic as a “blip” on their financial performance that is not indicative of their ongoing value. On the other hand, Buyers of health care business may want to adjust the consideration that they pay to reflect some level of risk associated with operating during a pandemic of uncertain duration.

When will we see the pace of transactions pick up?

“We generally have not seen much of a difference in M&A activity in the health care area since the pandemic started. Nonprofit healthcare systems still are looking for increased patient populations with which they want to deploy their population health initiatives, so network-building will probably always be a motivating factor for expansion.

On the distressed side of the industry, my observation is that hospitals that might have the ability to “tread water” are doing so with government assistance while undertaking the management gymnastics required in the COVID-19 environment in which we are living now. Adding the stress and pressures of a transaction on top of all that is not a choice that many are making – right now. However, those distressed hospitals that are moving forward with transactions because they must seem to be finding fewer opportunities to consider. The level of activity will pick up once the pandemic passes, I think. “

What are the biggest barriers to a deal today?

One of the main obstacles to deal-making now versus last year could be simply the capacity of management teams and governing boards to deal with the pandemic and its effects, as well as the requirements of doing a deal.

Jake AygunPonder & Co

Jake Aygun

Vice President, M&A Group

When will we see the pace of transactions pick up?

We agree with the industry consensus that the pandemic will inevitably spur an uptick in M&A activity over the next several years. However; the timing and pace remain variables that depend on, among other things, the future impact of the virus on an organization’s core healthcare functions and the unprecedented challenges that come with navigating remotely (at least in part), a partnership search and deal execution process.

Since the onset of the pandemic, in an environment rapidly evolving, but one that also remains fragile and fluid; we have already witnessed varied outcomes on the degree of M&A activity. We observed from limited data points that some transactions have been postponed or called off; while others have progressed and even accelerated. Based on unique circumstances ranging from where they are in the process, financial strength of both parties, strategic alignment, and cultural fit.

Looking out over the next six months to a year, there will be more distressed assets (and systems owning non-core challenged assets) urgently seeking a partner/buyer. However; tempering the notion of a tidal wave of hospital “buyouts”, is the fact that buyers themselves have been affected by the pandemic and may become more selective and judicious on which strategic growth initiatives to pursue and which financial commitments to make.

Conversely, for those organizations more favorably positioned to withstand the initial brunt of COVID, and who desire to remain independent; it may take the next year to 18-months to grapple with their future ability to remain a viable going concern. These organizations may consider dual-tracking their focus by beginning to evaluate their potential strategic options, in addition to remaining inwardly focused on shoring up their organization’s core health care functions. For these entities, a wider range of structures are afforded their consideration, and therefore; it could take several years for these systems to vet their options and decide to ultimately pursue a change of control transaction.

What are the biggest barriers to a deal today?

  • There are a number of novel impediments to navigating a deal today, introduced by the pandemic; including, the challenge of how to, in large part, remotely but effectively make major transaction decisions in terms of governance, process a deal and satisfy due diligence. Other impediments would include the difficulty in attempting to quantify the financial considerations and building a reliable business case on which to transact.
  • More broadly speaking, the most significant threat/obstacle today to bringing a deal to closing is ironically the same force which initially draws many organizations to consider coming together under any number of different alignment models – derailment of mutual strategic goals and objectives to counter COVID. The pandemic’s unmatched and unpredictable power to disrupt a provider’s core operational and financial circumstances over just a few months is shocking. Consider then, the variability that COVID could produce over the course of a year or more during the deal process. As conditions largely influenced by the pandemic change and are realized, especially if the impact disproportionately affects one party more than the other, the goals and objectives of both parties are likely to deviate. So, for example, if the target’s financial condition worsens, is the likely buyer/partner still willing to double down on making a strategic investment, especially if its own situation is worsened? Will priorities and focus shift elsewhere?
  • To be clear; the core drivers of consolidation have not changed, and the need to consistently grow in order to combat expense inflation, fulfill technology and capital needs, and adapt to uncertain value-based payer models continues to pressure hospitals and systems of all sizes and circumstances. However; it is how these organizations experience COVID or perceive COVID’s potential impact on these core drivers that poses the biggest threat to successfully maintaining mutual goals for alignment and consummating a transaction.

Michael RameyPYA

Michael Ramey


When will we see the pace of transactions pick up?

We are already seeing signs of increased transaction volume, especially in the for-profit healthcare sector. Several deals put on pause due to economic uncertainty have resumed discussions,. Coupled with new sellers exploring transaction options, and there are definitely signs that transaction volumes are, or soon will be, on the rise. Ultimately, how many of these discussions result in closings – and how that volume will compare to the robust number of deals in recent years – is yet to be determined. That ambiguity is largely due to the “COVID uncertainty” and its emerging, and evolving, impact on deal terms and market prices.

What are the biggest barriers to a deal today?

Resetting expectations between buyers and sellers seems to be the biggest issue. Based on the impacts of the pandemic, one would expect the seller’s market of recent years in the healthcare provider space to shift somewhat toward the buy side. Deals are being restructured, where legally possible, through earnouts, higher residual equity stakes, and other mechanisms to shift some of the ongoing operational risk to sellers. Furthermore, more scrutiny is being applied in due diligence to evaluate the pace and sustainability of operational rebound, as well as the compliance matters associated with taking government relief funds and loans.

Ken MarlowWaller

Ken Marlow

Partner, Healthcare Industry Chair, Board of Directors

When will we see the pace of transactions pick up?

If only we had a crystal ball! Prior to the pandemic, 2019 was a particularly slow year for hospital M&A. So, naturally, we are due for a rebound in deal activity. Couple that with the amount of pressure that the pandemic has put on hospitals, there is no doubt that the pandemic will ultimately result in an uptick in M&A activity over the next several years. But, when precisely and the types of transactions really depends on the future impact of the virus. In the next few months, however, we will see more distressed hospitals seeking partners or buyers.

What are the biggest barriers to a deal today?

If the boards and leadership aren’t aligned on the strategic direction of a transaction, then they will not succeed. It sounds simple, but you’d be surprised. Every transaction, particularly in the wake of this pandemic, will require an undeniably strong strategic reason for the transaction. And those are the ones that are going to get done.

When will we see the pace of transactions pick up?

A number of clients and investment bankers have confirmed that sale processes are being ramped up and financial due diligence accelerating. That said, the pace and type of deals may not match the speed and size that we anticipated in January. In the near term, we expect the majority of deals to be tuck-in physician practice acquisitions, many of which were already in the works pre-COVID. We are also seeing distressed transactions to acquire groups that have struggled the most and no longer have access to sufficient working capital. Larger platforms so far have been less likely to face severe cash shortages — especially if backed by private equity — and may be more willing to wait on the sidelines for a full economic recovery. By late Q4 or early 2021, we expect debt markets to stabilize and more traditional platform auction processes to rebound strongly.

What are the biggest barriers to a deal today?

As much as businesses across the world have embraced virtual meetings, in-person meetings are still an important part of getting deals done. When buying a healthcare practice, you don’t care much about the chairs and computers. It’s the people that matter. For physician practice deals, trust can be the “make or break” of any deal — and at a minimum, the key factor in determining how fast the parties can get to a closing. Going forward, it will be incumbent on buyers, sellers and their counsel to find other ways to build trust and rapport — because for physician practice deals, a sale process is only the start of a long-term relationship.

Illustrations by Shannon Threadgill

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As Jarrard Inc's Content Marketing Manager, David Shifrin specializes in curating ideas and making technical concepts accessible to broad audiences, helping thought leaders move past jargon to present core messages in a meaningful way. He received his PhD in Cell and Developmental Biology from Vanderbilt University.