Healthcare Dealmaking Slowed for the Fifth Consecutive Quarter

According to PitchBook, steadily decreasing valuations in healthcare may force PE firms to accept that a ‘wait and see’ approach is no longer viable.

Illustration by II

Illustration by II

Private equity firms that target the healthcare industry are adjusting to what appears to be the new normal of depressed valuations and sluggish dealmaking.

The number of healthcare deals declined to 200 in the first quarter, down 6.2 percent from the fourth quarter of 2022, according to PitchBook’s first quarter healthcare services report. It was the fifth consecutive quarter in which deal count dropped. Valuation multiples for most industry categories have decreased to the levels of 2018 and 2019.

“The industry is settling into a new normal of higher interest rates, lower multiples, and slower, more proprietary deal processes,” the report said. “In this new normal, buyer-seller valuation gaps will wear down with time, and sponsors who have been taking a ‘wait and see’ approach to exit timing may grow tired of waiting as the macroeconomic picture continues to show an elevated probability of recession.”

According to the report, add-on deals, which are subsequent investments made by a PE firm to enhance an existing portfolio company, made up the greatest number of transactions across the various subsectors in the healthcare industry. Add-ons have become part of the more risk-averse, conservative strategy that PE firms have adopted in the current market.

The healthcare industry reached its valuation peak in 2021, with the EV/EBITDA multiple (enterprise value divided by earnings before interest, taxes, depreciation, and amortization) reaching 15.9x, according to PwC. By the end of 2022, the average EV/EBITDA had decreased to 14.4x.


Even in the fourth quarter of 2022, some PE firms still expected to exit at 2021-level valuations, according to Rebecca Springer, senior analyst at PitchBook. But now, more PE firms will need to accept the reality of valuation multiples that are “a couple of turns lower” than the peak, she wrote in the report. Part of the reason for this is the reduced amount of leverage available from lenders, who were only willing to underwrite 4x or 5x for healthcare deals in the first quarter, rather than the usual 6x seen during 2021.

“Turning to the deal outlook for the remainder of the year, the key question is whether we have reached the nadir yet,” the report said. “We hear little sentiment from market participants that would suggest an imminent rebound in platform deal activity.” For this reason, she expects to see “more distress-driven deals play out as the year continues.”