Investors have reason to be more confident in pursuing and completing deals in the next 12 months.
The new year is expected to bring with it a more favorable environment for dealmaking within health services.
Thanks to plenty of capital available to corporate and private equity investors, the potential for further interest rate cuts, and policy by the incoming presidential administration driven by a pro-business stance, M&A activity should continue to rise in 2025, according to a report by PwC.
Health services deals actually declined last year, totaling 1,373 through November 15, which was a 9% drop-off from the 1,506 transactions in 2023. Still, 2024's figure was nearly 70% higher than the pre-pandemic trends of 828 deals in 2019 and 814 moves in 2020.
“Dealmakers within health services continue to demonstrate the sector’s resilience despite regulatory uncertainty and broader reimbursement headwinds," Nick Donkar, PwC's US Health Services Deals Leader, said in the report.
Deal value, meanwhile, trended up last year with $69 billion recorded, compared to $63 billion in 2023. Megadeals, or transactions greater than $5 billion in value, remain on the decline as 2024 saw $17 billion in megadeals value. That number hit a high of $115 billion in 2021 before falling to $54 billion in 2022 and $23 billion in 2023, demonstrating the cooling effect of the regulatory climate on larger deals, PwC said.
The report also highlighted the increased hold period for investments, which is set to spur a flurry a moves to create returns.
The year-to-date 2024 average hold period of health services portfolio companies for global private equity investors is 5.5 years, outside the traditional three to five-year investment model. Private equity investors are expected to be motivated to cash in on those assets and pour the resources into new ventures.
On the policy side, while there is a wait-and-see approach to how the incoming administration acts, the current sentiment is that it shouldn't hinder dealmaking.
"The Trump administration’s stance on antitrust issues will be closely monitored in the first months of the administration and investors are cautiously optimistic that the administration will relax enforcement actions and have a more deferential view towards markets," the report stated.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Health services should see plenty of M&A transaction in 2025 after headwinds did little to slow down deals last year, say PwC analysts.
The current hold periods for private equity investors are longer than usual, signaling a desire to create a return on assets.
Investors are also optimistic about the effect of the incoming presidential administration on antitrust policies that could impact markets.