Healthcare M&A Market Braces for a Cautiously Optimistic 2024

In 2024, PwC's Health Services Deals Outlook presents a cautiously optimistic view of healthcare mergers and acquisitions (M&A), despite a 13% decline in deal volume compared to the previous year. Key points from the outlook include:

Cautious Optimism: Despite the decline in deal volume, there is a sense of cautious optimism for the healthcare M&A landscape in 2024. Adaptability, resourcefulness, and a focus on value creation are deemed essential for navigating the evolving environment.

Factors Fueling M&A Activity:

• Abundant Capital: Record levels of available cash and investments nearing exit windows create potential for significant deal activity.
• Strategic Imperatives: Both corporates and private equity firms are driven by the need for business reinvention and portfolio transformation, often through M&A.
• Creative Approaches: Non-traditional deal structures, such as continuation funds and co-investor partnerships, highlight investor adaptability.

Beyond Volume:

• Lower Valuation Multiples: Although deal volume declined, lower valuation multiples provide value-seeking opportunities for investors, with larger transactions being impacted by financing challenges.
• Resilient Sector: Macroeconomic indicators, including robust healthcare venture capital fundraising, indicate the sector's continued attractiveness for investment.

Key Drivers:

• Carve-outs on the Rise: Incumbents facing nontraditional competition and conglomerates streamlining operations contribute to an increase in carve-out transactions.
• Cross-Sector Collaboration: Nonprofit health systems are seeking external expertise through collaborations with for-profit entities, particularly in areas like Value-Based Care (VBC).
• Generative AI: The potential for disruption and productivity gains in healthcare through Generative AI is being monitored, but regulatory uncertainties persist.

Challenges to Navigate:

• Regulatory Scrutiny: Ongoing oversight of specific transactions and concerns about industry concentration pose challenges, particularly for private equity.
• Reimbursement Woes: Rising labor and supply costs exceeding government-approved rate increases could lead to liquidity challenges for some healthcare providers.