Healthcare Dealmaking Is Down, But Not Out

Dealmakers have become more selective about target firms amid rising economic uncertainty.

Illustration by II

Illustration by II

Despite rising geopolitical tensions and macroeconomic uncertainty, 2022 was still the second-biggest year in terms of deal value and count in the healthcare industry.

According to Bain’s latest estimates, the number of buyout transactions in the global healthcare industry was around 400 in 2022, down from 515 in 2021. The value of deals is expected to be between $90 billion to $100 billion, down from $151 billion the year before but still significantly higher than the pre-2021 record.

The strong deal activity in 2022 exceeded the expectations of most investors. According to KPMG’s annual Health Care and Life Sciences Investment Survey, 56 percent of corporate and private equity firms in the sector said that activity in 2022 was higher than what they expected at the beginning of the year. Half of the respondents said they deployed more capital last year than planned.

“Health care private equity activity remained strong in the face of rising geopolitical tensions, high inflation, slumping stock markets, and spiking interest rates,” the Bain report said. “Ample dry powder and a track record of returns ensured a strong year for HCPE investing that continues to attract healthcare-specific funds, and we expect this trend to continue in 2023.”

Falling valuations in private markets will also fuel deals in 2023, according to Glenn Mincey, global & U.S. head of private equity at KPMG. “Many investors are more optimistic now than they were in the last quarter of 2022 as lower valuations and the potential easing cost of capital in 2023, notably in the second half of 2023, may make deals more attractive,” he told II. “As a result, we will likely see that capital come off the sidelines as investors take advantage of evolving market conditions.”


Nevertheless, persistent inflation, rising interest rates, and growing competition for a limited number of good targets will be major headwinds, according to the KPMG survey.

“Inflation hit a 40-year high, straining the budgets of health care consumers, suppliers, and providers,” according to KPMG. Hospitals, for example, will have to pay higher prices for goods and services, as well as for healthcare workers. It has become harder to attract and retain staff in the industry as the war for talent intensifies. “Many caregivers continue to leave hospital settings for ambulatory and ancillary providers that promise similar pay but a better work-life balance,” the report added.

To adjust to the volatile macro environment, PE healthcare funds have become more selective about their targets. Since the second quarter, PE funds have been seeking companies that are “resilient to a potential inflation-driven downturn or [that have] ways to take advantage of falling public valuations,” according to Bain. These companies are concentrated in the biopharma and life science tools sectors.

“Investors are approaching deals with more caution,” Mincey said. “They’re undertaking rigorous due diligence to ensure each deal is the right fit for their long-term business strategy and [is] well positioned to create value quickly.”