Healthcare dealmaking 'resilient' despite regulatory, economic headwinds: PwC

Even in the face of substantial headwinds, dealmaking in the healthcare industry hasn't fallen off, according to a new analysis from PwC.

The report categorizes the M&A outlook in healthcare as "optimistic" in spite of rising interest rates, a greater focus on antitrust and broader macroeconomic pressures. Deal volumes in the 12 months ending May 15, 2023, decreased by 4% compared to 2022 levels, according to the analysis.

In tandem, deal values decreased by 15%, which follows a trend identified in 2022 toward more smaller-value deals. That said, more than half of the announced deal value in those 12 months was included in megadeals, or those valued at $5 billion or more.

Nick Donkar, U.S. health services deals leader at PwC, told Fierce Healthcare that the results follow two "banner years" of dealmaking in 2021 and 2022 and highlight "the resiliency of the health services sector relative to the broader market, even amidst the headwinds."

"Coming off the busiest years from a volume perspective that we’ve ever experienced, this sector is only down 4% volume-wise," Donkar said. "I was extremely pleased that the health services sector was as resilient as it was."

In the study window, the bulk of dealmaking value fell into the "other services" category, which includes ambulatory surgery centers, home infusion services and contract research organizations. This segment accounted for $38.2 billion of the $85.2 billion in total deals.

Physician medical groups, meanwhile, accounted for the largest number of individual deals, at 621 out of 1,661. However, these deals accounted for just $3.9 billion of the total, and volumes were up by 1%.

Donkar said these trends are part of a broader move toward more unconventional dealmaking and a focus in the industry on taking a closer look at the business portfolio. For example, a provider may choose to partner with a private equity firm on a new joint venture that may better suit their needs.

Strategic divestitures have also been a focus for many organizations across the industry, he said.

"There’s power in divestitures and portfolio renewal that we should be thinking about," Donkar said.

In addition, a number of regulatory pressures are at play in the dealmaking environment, according to the report. Medicaid redetermination, for example, holds promise for payers and other stakeholders in the benefits space to grow their market share in the exchange or employer-sponsored segments, according to the report.

Antitrust enforcement is still of interest, though enforcement is "tepid," according to the analysis. This is paying off for midsized firms.

"This is leading to medium-sized players finding themselves in more favorable positions during competitive processes as traditional strategic participants remain concerned with potential regulatory objections," according to the report.