The pace of healthcare and life sciences mergers and acquisitions has slowed, according to KPMG’s latest report.
The report, which examines the dealmaking pace for the first quarter of 2022, found this quarter’s deal volume has declined by 34% to 427 deals compared to the fourth quarter of 2021. Private equity has pulled back the most, making 50% fewer deals.
“Deal activity is still reasonably robust, it’s just not frantic like it has been for the last 12 to 15 months,” Ross Nelson, head of KPMG’s healthcare strategy practice, told Fierce Healthcare.
Amid the Russia-Ukraine war, global supply chain issues, inflation and rising interest rates in the U.S., private equity investors are expected to lower leverage ratios. This is already the reason some transactions have not been completed, according to Nelson, “because there was a mismatch in valuation expectations from both” sellers and buyers.
Most large for-profit hospitals and health systems have healthy balance sheets, though smaller hospitals in smaller markets could be vulnerable, which may lead to a rise in consolidation, restructuring, closures and bankruptcies, the report predicted. Large players wanting to adjust their portfolios will try to sell off noncore assets in carve-out transactions, while providers will focus on telehealth acquisitions. Smaller players will look to partner with or be acquired by larger ones.
Some top deals this quarter included R1 RCM’s acquisition of Cloudmed and Florida Blue's parent company GuideWell scooping up Triple-S Management.
Healthcare IT and analytics deals rose among private equity by 4% from last quarter. Among strategic buyers, behavioral health was the only subsector where deal volume grew (by 17%). In general, investment in healthcare IT and telehealth is expected to remain steadfast.
Partnerships and joint ventures may become increasingly popular in part because they can create value more quickly than acquisitions, especially among hospitals where diversity in stakeholders, organization mission and services may not align for an acquisition, Nelson said.
As telehealth gains traction, KPMG expects the focus to be on incorporating it into provider workflows as well as electronic health record and billing systems. “One of the biggest prizes will be for the provider of true interoperability, not the coolest wearable app,” the report noted.
Editor's note: This story has been updated.