PwC: Dealmaking activity in healthcare shows stability in early 2024

Despite major headwinds that still buffet the industry, deal volumes so far this year are largely consistent with those seen in 2023 and remain above pre-COVID levels, according to a new report.

Through April 30, deal volumes were down by about 4% from 2023, according to analysts at PwC. The researchers said many dealmakers in the market have adapted to challenges like interest rates and related effects, and that backdrop, along with a significant amount of available capital, should "continue to bolster deal activity throughout 2024."

Nick Donkar, partner and health services deals leader at PwC, told Fierce Healthcare that it's notable to see consistency in dealmaking across healthcare.

"If you look at the report, and you look at some of the themes for the prior updates and reports we've done, it's sort of steady as she goes," he said. "And I think in the report, we use the word resilient to speak to the overall landscape of health services deals."

"While some would say, 'Well, why is that exciting?'" he continued. "Well, it's exciting because even with all these headwinds, there are still deals getting done, and deals getting done of all shapes and sizes, private, public. So there's a wide array of opportunities in the market to effectuate deals, I think now more so than ever."

Through April 30, deal volume was 1,484 and total value was $72 billion. Of that, $29 billion was in big-ticket "mega-deals" while the other $42 billion came from all other dealmaking.

Deal volume peaked in 2022 and has since come down to a more stable level, according to the report.

The largest volume of deals at 418 came from "other services," the analysts said, which includes ambulatory surgical centers, home infusion providers and medical office buildings. The largest value at $32.1 billion came from the pharma space, according to the report.

Donkar said that while venture capital and private equity funds do have cash to deploy, they have stood more on the sidelines amid a rise in interest rates. However, they're finding different investment models appealing, such as launching joint ventures, partnerships and recapitalization for portfolio companies.

These less traditional relationships can take longer to come together, he said, which is stretching the timelines on some deals in the works.

"It's not that they don't want to deploy the capital that's there," he said. "It's that they want to make sure they deploy the capital in the right manner that generates the right return."

Donkar said organizations traditionally conducted strategic reviews every three to five years, and those reviews are now happening more frequently, even annually. This makes it easier to identify segments that are ripe for growth or that could become strong partners with investors, he said.

Other trends to watch in this space include a growing interest from regulators at both the state and federal levels to intervene in dealmaking and the role emerging technologies can play in the future.

Donkar said it's key for firms to begin proper legal consultations early in the process and to check in regularly. This avoids any unexpected regulatory hurdles. Keeping an eye on the pulse of the market and actions government entities are taking is also crucial.

The report also notes that growing interest in generative AI has implications in the deals space. Dealmakers should do their due diligence around these technologies and continue to focus on cybersecurity, according to the report.

Donkar said, though, that AI is still in the nascent stages in this space.

"I think, in all honesty, we're still at the early stages of AI usage in deals," he said. "It is going to continue to increase, but it's just one other tool in the toolkit as I think about effectuating transactions as a whole."