A new report by PitchBook highlights how privae equity dealmaking is faring across the industry.
Private equity’s activity in healthcare services in the third quarter was diminished.
An estimated 148 private equity deals were announced or closed in the quarter, a drop-off from the 185 deals in the second quarter, as investors turned their attention to other sectors, according to a PitchBook report.
Despite the downturn, which is on pace to result in a deal count for the year that is 15% below 2023 levels, the market data provider continued to stand by the prediction it made in the previous quarter that private equity investing in healthcare services hit a “turning point.”
“We are standing by that call, although we are still waiting for the resulting deal announcements as processes drag on and sponsors try to time the market,” Rebecca Springer, lead analyst for healthcare at PitchBook, wrote in the report.
Regulatory pressure and high interest rates, along with price differences between buyers and sellers, have cooled the market and brought down activity from the highs of 2021.
PitchBook anticipates investments to increase at the end of the year with dealmaking timelines extended, but noted that growing optimism among buyers and sellers in the second half of 2024 is being directed toward healthcare IT and pharma services.
Within healthcare services, areas that are seeing the most sponsor demand and interest, which include medspa and outpatient mental health, have a shortage of platform-scale assets, the report stated.
Two larger platform trades in applied behavioral analysis earlier this year should be a precursor for more deals there, while home-based care should still have some buzz.
Though investors have recently shied away from physician practice management companies, PitchBook expects to see the market pick up a bit partly due to regulatory concern stabilizing.
The report also said that the Medicare Advantage market drying up is causing struggles for value-based primary care assets, such as Cano Health and Clinical Care Medical Centers. The former filed for bankruptcy earlier this year while the latter followed suit in October.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
The third quarter saw 148 estimated private equity deals announced or closed in healthcare services, compared to 185 in the second quarter, PitchBook reported.
Extended dealmaking timelines and sponsors waiting for the right moment to strike contributed to fewer deals in the quarter, but could cause a rebound effect in the coming months.
Areas in healthcare services that are attracting sponsor demand and interest include medspa and outpatient mental health, while value-based primary care assets are hurting.