- Deal volume should grow in most sectors within healthcare and life sciences in 2020 compared to 2019, according to a new report from KPMG that includes survey results from 333 investment professionals.
- Healthcare information technology generated the most interest among investors (30%) for 2020, while hospitals and health systems (8%) generated the least. Investors also expressed interest in the pharmaceutical and biotech sector (24%), behavioral health (23%), home and hospice care (23%), physician, dental and rehab practices (19%) and managed care companies (15%).
- The biggest driver of M&A activity reported in the industry was consolidation and economies of scale, followed by acquisitions to increase earnings per share, changing payment models and portfolio management and rationalization.
M&A activity in the healthcare and life sciences sector is strong — up 40% year-to-date in September 2019 compared with the same period in 2018, according to KPMG.
Investors expect the robust activity to continue in 2020. Only 39% of survey respondents said the healthcare sector was at or nearing a bubble, down from 50% in 2019. Fewer respondents — 23% in 2020 and 48% in 2019 — believe the life sciences sector is in a bubble.
The new year has already seen a number of deals. In the payer space, startup Bright Health bought a small California plan focused on Medicare Advantage while Molina nabbed a company serving Medicaid members in the Chicago area for $50 million. Also, primary care chain One Medical filed for an IPO earlier this month and Teladoc announced Monday the $600 million acquisition of InTouch Health.
The percentage of investors who think industry fundamentals are strong is 35% for the healthcare sector and 28% for life sciences. However, the outcome of the 2020 election could disrupt the rosy outlook. Almost half of respondents said the election could have a negative impact on deal activity in healthcare and life sciences.
Changing market conditions could have the opposite impact, leading to more deal activity. These include new market entrants, the shift to value-based care and products to address social determinants of health.
In the HIT sector, investors are most interested in tools involving analytics and informatics, cloud-based EHRs and workflow applications, revenue cycle management software and telemedicine. That follows a Rock Health report predicting more companies in the digital space will go public this year. That analysis found that last year saw $7.4 billion invested in 374 companies.
KPMG said another sector likely to be booming is pharmaceuticals and biotechnology, with 68% of respondents saying deal volume will be greater in 2020 than it was in 2019.
The outlook for hospitals and health systems isn't as strong. Nearly one-third of investors expect the sector to grow more slowly than the overall healthcare and life sciences industry.
Overall, KPMG analysts expect a big year. "Given the pace of deal activity through the end of 2019, investors seem to have adapted to investment in a changing political environment. Barring any unforeseen catastrophe, and as long as the economy remains robust, we believe that investment activity is likely to continue to be relatively strong, perhaps through the summer and up until the elections," they wrote.