{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
M&A activity shows stamina across health services
Health services deal volumes through April 30 declined by a modest 4 percent from 2023 levels, demonstrating continued resilience coming off the peak volumes of 2022. While the sector continues to be impacted by headwinds including increased regulatory pressure, dealmakers have become more accustomed to the current interest rate environment and have adapted to the correlated decline in price to earnings multiples.
These factors, combined with broader market tailwinds such as capital availability and a need for sponsors to facilitate exits and return capital to limited partners, should continue to bolster deal activity throughout 2024.
- Deal volumes through April 30 are largely consistent with 2023 levels, and while volumes have declined from the 2022 peak, they remain nearly twice the pre-COVID levels.
- Megadeals are subdued relative to 2021 and 2022 levels, with three megadeals completed in the 12 months ended April 30, 2024.
- Public company enterprise value to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples have declined across nearly all subsectors, resulting in an average multiple of 13.2x as of April 30 versus 14.2x the year before.
- Despite the sector valuation declines, transaction volumes have remained steady, indicating acceptance of the higher-for-longer interest rate environment and a narrowing valuation gap between buyers and sellers.
Strategy alignment and capital availability continue to drive M&A volumes
Corporations have a significant amount of cash on their balance sheets to pursue acquisitions, while private equity and venture capital firms continue to hold near record-level capital on the sidelines. Corporates continue to focus on divesting underperforming businesses or those that no longer fit with strategic priorities, while sponsors are looking to divest longer-held portfolio companies to return capital to investors.
As we’ve highlighted in past outlooks, non-traditional deals continue to drive activity within the health services sector, whether it be transactions with alternative financing structures, carve-out transactions, the continued influence within the sector of non-customary players such as retail operators, or strategic cross-sector deals including partnerships, coinvestments or joint ventures between not-for-profit and for-profit entities. We expect these non-traditional deals to continue driving activity in the sector throughout 2024.
“Regulatory actions and other macro variables continue to drive cautious dealmaking activity, but the sector continues to remain resilient against these obstacles.”
The bottom line
Sector activity continues to be robust relative to the pre-COVID period and valuation multiples are aligning, with dealmakers acknowledging the financing constraints imposed by the higher-for-longer interest rate environment. Non-traditional financing and structuring approaches will continue to be employed in response to these macroeconomic factors and we expect alternative deal structuring in response to legislative and executive actions that may be implemented at both the federal and state levels.
Despite these challenges, the sector continues to be resilient with high levels of activity driven by the continuing tailwinds from demographic trends, Centers for Medicare & Medicaid Services (CMS) targets for moving fee-for-service members into value-based care arrangements, and continued innovation in the sector aimed at achieving the quadruple aim of enhancing patient experience, improving population health, reducing costs and improving the work life of health care providers.
About the data
LevinPro HC: The merger and acquisition data contained in various charts and tables in this report have been included only with the permission of the publisher, Irving Levin Associates LLC. All rights reserved.
S&P Capital IQ: Information provided by or through third parties is provided “as is,” without any representations or warranties by PwC or such third party. PwC and such third parties disclaim any contractual or other duty, responsibility or liability to client and any person or entity that receives such information.
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}
Follow us
