- Deal volumes in the health services sector slipped 9% in the first quarter compared to the fourth quarter of 2021, but are still trending above the longer-term average and are expected to bounce back in the coming quarters, according to a mid-year update from PwC.
- Volume remained strong on an annual basis, with the number of deals across all health service subsectors for the year ending May 15 up 5% in volume from the previous 12 months. Roll-up transactions meant to consolidate fragmented healthcare subsectors drove the volume increase, the report said.
- Deal values, however, fell 17% to approximately $176 billion during that period.
Even with economic challenges like inflation and supply chain disruptions darkening the horizon, private equity and corporate funding remains at unprecedented levels and will continue to fuel competition for assets, PwC predicted. A common theme among transactions involving health systems over the past year was a push for digital capabilities to support higher-quality care, the report said.
Buyer interest in physician medical groups remained at elevated levels, after dealmaking in that area nearly doubled during the first quarter of 2021, PwC said. The report tracked 482 physician medical group deals through May 15, valued at a total $5.7 billion. Dealmaking has remained robust in the area as private equity and health systems compete for the medical groups. PE firms are looking to grow their regional and national platforms, while health systems are vying for market presence, the report said.
The pandemic has also sparked interest in alternative care models that are more accessible to patients, PwC said. The report counted 142 home health and hospice deals in the year ended May 15, a gain of 19% in value over 2021. Boosting the volume total was UnitedHealthcare’s acquisition of Louisiana-based home health organization LHC Group for about $5.4 billion in cash, plus debt.
UnitedHealth and LHC Group earlier this month received a request for additional information on their deal from the Federal Trade Commission, as regulators step up scrutiny of healthcare M&A.
Still, only two large M&A transactions have occurred in 2022 so far, a slower pace compared to the seven announced over the 12 months ended May 15. One was the LHC acquisition; the other megadeal was the $18 billion merger between two healthcare real estate investment trusts that combined two of the largest holders of medical office buildings. REITs own 8% of healthcare properties across the country, PwC noted.
Long-term care was another subsector driving transactions in 2022, with 498 deals recorded in the year ended May 15, up from 446 during the prior year. Deal value rose by 2% to $19.6 billion. PwC noted the aging population is supporting growth in this area, but COVID-19 continues to weigh on occupancy levels at skilled nursing facilities.
With federal stimulus money running out, the financial stability of some health systems may now come into question. Capital is still readily available, but rising interest rates could expose some companies to greater financial stress, and initiatives to drive efficiency will become more important for health systems, PwC said.