Mergers and Acquisitions in Healthcare: Q1 2025 Analysis
The first quarter of 2025 has seen a significant slowdown in mergers and acquisitions in the healthcare industry, reflecting market volatility and economic uncertainty. According to the Kaufman Hall Mergers and Acquisitions Quarterly Activity Report, only five transactions were announced during this period, the lowest number in recent history. This “chill” on healthcare decision-making has been attributed to factors such as tariffs and potential policy changes from the new administration.
Unlike previous quarters, there were no “mega-mergers” announced in Q1, where the smaller party has annual revenues exceeding $1 billion. The average size of the smaller party, in terms of annual revenues, was $279.3 million, significantly lower than previous years. This resulted in total transacted revenue of just under $1.4 billion, less than half of the recent low recorded in Q1 2022.
On the acquirer side, there was a mix of for-profit, nonprofit, and religiously affiliated organizations involved in the transactions. Despite the low number of deals, the healthcare decision-making landscape remains dynamic and diverse.
Financial Impact and Hospital Performance
Despite the slowdown in mergers and acquisitions, hospital volumes remained strong in February, particularly in emergency departments. However, expenses continued to rise, leading to a drop in average operating margins from 3.4% in January to 2.5% in February. The average EBITDA margin also decreased month-over-month but showed a year-over-year growth of 1%.
The rise in supply expenses per calendar day, along with increases in drug expenses and nonlabor expenses, contributed to the overall expense growth of 8% year-over-year. Despite these challenges, hospital performance remains relatively stable, with discharges per day increasing by 6% and emergency department visits up by 4% over the past year.
Looking Ahead
The healthcare industry continues to navigate a complex landscape of financial challenges and regulatory changes. The trends observed in Q1 2025 highlight the need for strategic decision-making and financial planning to ensure the sustainability of healthcare organizations.
As the year progresses, industry stakeholders will need to monitor market dynamics closely and adapt to changing conditions to drive growth and innovation in the healthcare sector.
Written by Jeff Lagasse, editor of Healthcare Finance News.
