After a very active year in 2021 and a reasonably robust market in 2022, M&A deal-making in the healthcare sector will soar in 2023 thanks to much corporate cash and private equity sitting on plenty of dry powder. Healthcare and health services companies are expected to actively explore M&A, divestitures, and other types of transactions, making it an attractive marketplace for parties.
In 2021, nearly 2,000 health services M&A deals were completed at a value of $217 billion, marking a high for the sector. This was positive considering the economic conditions at the time, showing that the healthcare sector is highly resilient and continually evolving. This is primarily due to advanced innovations and technologies that continue to draw investment in the effort to improve patient care.
Even in 2022, when the economic headwinds were complicated, deal activity remained strong in the sector. In the 12 months leading up to November 15, the health services sector saw 2,277 deals valued at $127 billion, with deal volume jumping 14% from 2021. Moreover, volume is expected to expand even further in 2023.
Some more evolutionary emerging deal trends include payer-provider convergence and value-based care. Value-based care focuses on coordinating and managing care to improve outcomes while lowering costs. This has pressured healthcare providers to be more efficient and cost-effective, leading many to pursue M&A deals to reach their goals.
More and more hospitals and health systems are merging to scale up while cutting costs. With combined resources and expertise, they gain better negotiating power with payers and suppliers and increase their ability to invest in new tech and services.
Additionally, physicians and other providers are teaming up to coordinate better care and improve outcomes, focusing on patient acquisition for effective value-based agreements.
Year-over-year deal volumes were up each quarter through Q3 2022, with a slight drop-off in Q4. The home health and hospice markets and alternative and patient-accessible care models largely drove deal valuations. There were nine multi-billion-dollar mega deals in the healthcare sector in 2022.
There is expected to be continued interest in home health and value-based care in 2023. Other areas anticipated to be ripe with deal activity include health services deals within multiple areas of physician practice management groups, healthcare IT, and the adjacent regions.
Last year through November, home health and hospice M&A deals totaled $19.5 billion. Labs, MRI, and dialysis deals were valued at $23.5 billion. Long-term care M&A deals garnered $13.6 billion. There is also expected to be a high level of consolidation among distressed hospitals this year as they continue to try to recover from the impacts of the COVID-19 pandemic.
Those hospitals and health systems operating at a high level are in the position to negotiate favorable terms, while those struggling will need to get creative and come up with unique solutions to up their chances of selling or even drawing interest from investors.
The COVID-19 pandemic also led to a significant spike in the Telehealth and telemedicine markets and their platforms and technology. These areas are still growing and are expected to continue to draw investment interest.
Private equity also has plenty of dry powder to drive up activity in the healthcare space. More firms have to reevaluate capital allocations because of the higher cost of capital in the current financing environment. This is driving more deals in which several PE firms pool their assets to make an acquisition. Combining excess dry powder, reevaluated strategies, and a relatively robust asset-trading environment is an excellent year for healthcare investing.
Also, global factors such as labor shortages, supply chain issues, geopolitical unrest, and inflation concerns could lead to more healthcare industry M&A transactions.
The increased volume of antitrust regulatory reviews is one obstacle to deal-making in the sector. Antitrust reviews may draw heightened attention in the coming year when deals are huge and on a public stage.
Another challenge could be the ineffective integration of IT, which can be highly complex when two companies with different platforms merge. Therefore, there needs to be a comprehensive plan laid out for IT integration if the newly formed company wants to avoid production declines and service delays.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Lawrie@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
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Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $10 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International’s transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the Global M&A Network as well as the #1 Sell-side Exclusive M&A Advisor in the World by Pitchbook’s Global League Tables.