While 2023 witnessed a downturn in healthcare services mergers and acquisitions (M&A), the landscape in 2024 demonstrated significant resilience. Easing macroeconomic conditions coupled with decreasing interest rates contributed to a more robust M&A environment. Although deal flow experienced a slight year-over-year constraint with 1,190 deals in 2024 compared to 1,220 in the previous year, deal sizes saw a considerable increase. This surge was notably influenced by major transactions such as Clayton, Dubilier & Rice and TowerBrook Capital Partners’ acquisition of R1 RCM for $8.9 billion, alongside Cardinal Health’s strategic vertical integration investments totaling $6.2 billion across three deals.
Several factors contributed to the measured pace of healthcare services M&A activity in 2024, echoing trends from the previous year. Persistent interest rate uncertainty and heightened regulatory scrutiny played crucial roles. Furthermore, the anticipation surrounding the presidential election and its potential ramifications on future legislation and the broader economic climate led many investors to adopt a more cautious stance. This cautious approach prompted a noticeable shift among private equity funds, moving away from provider-centric organizations towards outsourced services and other business-to-business (B2B) models. This strategic pivot allows investors to capitalize on broader healthcare industry tailwinds while mitigating exposure to provider and reimbursement risks.
Despite the prevailing uncertainties, a notable change in investor behavior emerged in 2024. Departing from the 2023 preference for smaller, cost-effective add-on acquisitions, investors demonstrated a renewed willingness to deploy substantial capital in pursuit of platform creation opportunities involving premium assets. The hesitancy to bring active investments to market, driven by election-related uncertainties and evolving healthcare M&A regulations potentially impacting private equity involvement, resulted in extended hold periods for existing investments, surpassing industry averages. This trend signals a growing prospect for secondary transactions in 2025.
Adding to the optimistic outlook for the coming year, the Federal Reserve’s announcement of another quarter-point interest rate cut on December 18th, the third consecutive reduction of the year, has further boosted investor confidence. The decreasing cost of capital is expected to foster a more favorable environment for M&A activities in 2025.
In summary, while 2024 presented a somewhat subdued landscape for overall M&A activity in the healthcare sector, Provident Healthcare Partners concluded the year with exceptional performance. The firm successfully closed 20 transactions, generating significant transaction value for its clients, underscoring its expertise and robust position in the market.
