Private equity continues to drive healthcare deals

Rising interest rates and fears of recession have not dampened investor interest in healthcare

According to a report by PwC, private equity continues to increase the number of transactions in the healthcare sector. While megadeals and overall value have been impacted by rate hikes and fears of a downturn, transaction volume has increased thanks to private equity interest in healthcare.

The report also identified the convergence of payers and providers, and investments from non-traditional players that are helping to drive more value-based care across the healthcare system.

Given these factors, along with large amounts of corporate and private equity cash, 2023 bodes well for healthcare transaction volume.
According to the report, the transaction volume in healthcare has continued to grow from 2021 levels, but has softened in the fourth quarter of this year so far. Transaction volume increased year-over-year in each quarter through the third quarter, although there was some decline in the fourth quarter through November 15. While transaction volume has continued to increase, transaction values ​​have declined from the peak set in 2021, a function of smaller-value roll-up and platform add-on transactions that represent a larger portion of year-to-date activity.

According to the report, home healthcare and hospice continues to be a sub-sector driving transaction value in 2022. This was one of only two sub-sectors where the value of announced transactions increased from 2021 levels as pandemic-driven interest in alternative and patient-accessible models of care continued to be a key theme. In the 12 months ended Nov. 15, there were 114 home health care and hospice deals, contributing to a 74% increase in deal value as of 2021. This deal value growth was fueled by two mega deals – CVS’ acquisition of Signify Health for $8.0 billion and UnitedHealth / Optum’s acquisition of LHC Group for $6.0 billion.
According to the report, megadeals accounted for nearly half of deal value over the past 12 months. The 12 months ended November 15 had seven mega deals including:

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  • $18 billion merger between two healthcare real estate investment funds and an $8.9 billion acquisition by Village MD (a subsidiary of Walgreens) of Summit Health-City MD, a provider of primary, specialty and emergency care services . These two deals together represent $26.9 billion of the $44.3 billion total value of deals for other services in the 12 months ended November 15.
  • Two mega home health care and hospice deals totaling $14 billion in transaction value.
  • Other mega deals include Quidel Corp’s acquisition of Ortho Clinical Diagnostics. ($8 billion), the acquisition of Mediclinic International by a consortium of investors ($7.4 billion), and Chubb’s acquisition of Cigna’s life, casualty, and ancillary benefits businesses ($5.4 billion).

While M&A volume was down compared to historical 2021 levels, the healthcare sector has been very active, according to the report.

PwC expects increased healthcare divestiture activity in 2023 based on a variety of economic, regulatory and overall strategic repositionings. Given the diversity of stakeholders in healthcare (e.g. for-profit, not-for-profit and private equity, etc.), all parties have different decision-making processes, but growth is the common goal of all stakeholders. As management teams evaluate growth, the ability to strategically review and align an organization’s portfolio is critical to shareholder returns. Other key issues that can help create value through divestitures include: timely decision making, actively embracing the divestment process, and managing inertia factors such as entanglements.

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