New analysis identifies private equity investment trends in the industry and how a changing environment could spur an increased pace.
Following a steady, but modest, year of private equity dealmaking in healthcare, 2025 could see higher levels of activity as market conditions shift.
Analysts forecast an increase in transactions due to falling interest rates, a more favorable regulatory environment under the Trump administration, and dry powder available to invest, according to a report by the Private Equity Stakeholder Project (PESP).
In the face of high interest rates and ramped-up regulatory scrutiny in 2024, 1,049 unique deals were completed by private equity firms last year, which marked a 7.6% decline from the 1,135 deals tracked in 2023, the study found.
Of the deals made in 2024, 166 were buyouts, 262 were growth/expansion investments, and 621 were add-on acquisitions to 383 unique platform companies.
The subsectors that experienced the highest activity were dental care with 161 deals, health IT with 140 deals, outpatient care with 139 deals, medtech with 105 deals, pharma services with 80 deals, home health, home care, and hospice with 73 deals, and behavioral health with 65 deals.
Private equity dealmaking peaked in 2021 and has since been trending downwards as high interest rates have made debt more expensive and harder to secure, causing firms to be more hesitant with assets, the report highlighted. As interest rates continue to decrease this year, analysts anticipate that private equity firms will get more aggressive with their investments.
Meanwhile, regulatory scrutiny picked up during the Biden administration as lawmakers put the spotlight on potential consequences of private equity ownership, including increased prices and lowered care quality.
A bipartisan report from the Senate Budget Committee released in January detailed how two private equity firms negatively impacted two hospital operators.
However, "it is unlikely that inquiries, investigations, and regulatory efforts undertaken by various federal agencies during the Biden administration to better address private equity in healthcare will carry into the Trump administration, which is moving to reduce the federal bureaucracy and workforce and pursue deregulatory priorities," PESP said.
The Federal Trade Commission's recent settlement with Welsh, Carson, Anderson and Stowe could foreshadow how the agency approaches private equity ownership going forward under new chair Andrew Ferguson.
Private equity firms can further avoid antitrust scrutiny by engaging in joint venture partnerships rather than traditional mergers and acquisitions, especially when the partnership combines nonprofit health systems with for-profit entities, the report noted. Joint ventures also allow private equity firms to access new markets through trusted organizations to achieve growth.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Healthcare deals by private equity firms in 2024 declined 7.6% year over year, but still produced 1,049 transactions, a study by the Private Equity Stakeholder Project revealed.
Dealmaking is expected to pick up in 2025 as interest rates come down and antitrust scrutiny cools off under the Trump administration.
Private equity firms will likely continue to utilize joint venture partnerships, which bring less regulatory scrutiny while being a viable growth strategy.