While dealmaking volume in 2023 and its fourth quarter slowed to pre-pandemic levels, the M&A landscape is anticipated to remain robust in 2024, particularly in the physician practice, payer, and health IT markets.
A recent outlook report and industry survey by KPMG reveal that healthcare providers will continue pursuing scale through mergers, with some grappling with heightened valuations for desirable payer and health IT targets. Factors contributing to the optimistic outlook include private equity's substantial reserves, stabilized valuations, and the expectation of health system volume recovery.
KPMG notes a convergence of factors shaping a potentially stronger deal market in 2024, but also acknowledges challenges such as reimbursement issues, tight margins, elevated interest rates, increased antitrust enforcement, and federal scrutiny. While the industry faces headwinds, the desire for scale remains crucial for hospitals to maintain positive margins, leading to increased partnerships and M&A activities.
The professional services firm emphasizes that M&A provides healthcare companies with hope in an uncertain marketplace by enabling resource-sharing, access to new markets, offerings, or talent, and potential sales to larger entities capable of investing in profitable growth.
Despite the potential for megadeals and smaller transactions, the report anticipates steady healthcare M&A in 2024, with strategic value for both buyers and sellers. The outlook is supported by a survey of approximately 500 healthcare and life sciences industry leaders, where around half reported investing in more deals in 2023 than initially anticipated. However, hospitals and health systems saw a different trend, with only a third of respondents reporting higher-than-expected dealmaking.
Financial investors in the healthcare space experienced a significant drop in dealmaking, from 526 deals in 2022 to 291 deals in 2023, according to Pitchbook data cited by KPMG. The report suggests that private equity firms, facing challenges in integrating and improving new acquisitions, may exercise caution in pursuing healthcare targets in the coming year.
