While economic headwinds and rising interest rates have put a damper on mergers and acquisitions across the healthcare industry in the second half of 2022, health services deals are likely to be on the up and up next year.
That’s according to the 2023 Health Services Deal Outlook report from PwC, which forecasted a strong year ahead with expansion for deal volumes in 2023. Health services deals––which include care and health services providers such as home health, hospitals, long-term care facilities and labs, MRI and dialysis––have lagged during the final three-month period in 2022. Compared to a year earlier, the number of health services deals have actually risen––there were 251 announced deals in the fourth quarter of 2022 through November 15 versus 307 in the same time frame in 2021.
While volumes have risen this year, deal values have declined, according to PwC’s report. Home health and hospice services were the leader in deal value. There were also two major deals in the subsector contributing to higher deal value. CVS announced its acquisition of Signify Health for $8 billion, while Optum acquired LHC Group for $6 billion.
“There were 114 home health and hospice deals in the 12 months ending November 15, contributing to a 74% increase in deal value from 2021,” the report stated.
In fact, nearly half of deal value from the 12-month period ending Nov. 15 came from seven megadeals. The biggest values came from just two deals––an $18 billion merger between two healthcare real estate investment trusts (REITs) and VillageMD’s $8.9B acquisition of Summit Health. The two deals totaled $26.8 billion, while other services deal value reached $44.3 billion during the 12-month period.
2023 growth
Despite lower deal value and higher deal volume in 2022, the end of the year has been marked by a noticeable slowdown in transactions. The economic challenges that many healthcare companies are facing, including labor shortages, higher costs, inflation and other strained resources, could lead many to reposition in 2023, potentially increasing deal volume.
“PwC anticipates increased divestitures activity within health services for 2023 based on a variety of economic, regulatory and overall strategic repositioning,” the report predicted. “Given the variety of healthcare participants (e.g. for profit, not for profit and PE, etc.), each of the parties have varied processes for decision-making, but growth is the one goal they all share. As management teams assess growth, the power of strategically reviewing and aligning an organization's portfolio is critical to shareholder returns.”
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."