Gary W. Herschman and Anjana D. Patel, Health Care Mergers and Acquisitions attorneys, in the firm’s Newark office, contributed to the Modern Healthcare article, titled “Healthcare M&A Insights: Q4 2024 & 2025 Look Ahead.”
Following is an excerpt:
The healthcare industry faced growing uncertainty throughout 2024 due to a number of factors, such as inflationary concerns, rising interest rates, and the then-looming presidential election. The volume of announced and closed healthcare industry deals in Q4 2024 (453) was down from Q4 2023 (506), and, as compared to 2023, overall, 2024 healthcare deal volume was 10-15% lower. However, as discussed in greater detail below, there is reason for optimism in 2025.
In 2024, as has been the case for the past several years, the Life Sciences & Pharmaceutical sub-sector had the highest yearly deal volume (631) of any sub-sector, followed by Medical Device & Supplies (255), Digital Health (229), and Physician Practices & Services (219). …
Outlook for 2025
The outlook for healthcare M&A activity in 2025 is increasingly optimistic, driven by several factors that suggest a robust and dynamic deal-making environment. With uncertainty surrounding the U.S. presidential election behind us, and a pro-business stance expected from the incoming Trump Administration, confidence in the healthcare market is already on the rise.
Additionally, the Federal Reserve’s recent interest rate cut provides a favorable financial backdrop, positioning the market for leveraged growth as we head into 2025. These economic tailwinds, along with the ongoing demand for innovative healthcare solutions, will likely drive significant transaction volume across the healthcare industry, particularly in the following sectors: outpatient care (physician services, ambulatory surgery, etc.), life sciences & pharma, digital health, and medical device & supplies.
Private equity activity will continue to be a major contributor to M&A activity, with investors benefiting from the recent prolonged hold periods of sponsor portfolios, but which are compelling the need to generate returns for their limited partners and create future fund-raising opportunities. This has led to a growing pipeline of future deal activity as these portfolio companies seek to monetize via “exits” (aka “second bite” transactions). In particular, we expect that a number of private equity healthcare platform companies that have unsuccessfully been marketed for “second bites” over the last couple of years will re-commence “exit processes” in 2025 and transact by the second half of this year (or in early 2026) due to the more favorable market conditions.
Strategics and private equity firms are also collaborating more, exploring joint ventures and unique deal structures to optimize value from non-core, stable cash flow assets. These factors, combined with ample dry powder in both corporate balance sheets and private equity, create a strong foundation for an active M&A market in 2025 and beyond. These collaborations include, for example, three-way joint ventures involving ASCs, hospital systems, and private equity backed physician platforms.
On a more specific level, many strategic and financial buyers are paying close attention to the potential policy decisions from the new Trump Administration that may influence their M&A strategy. A shift to a more predictable antitrust review process is expected to boost activity by providing clearer outcomes and timelines. In other cases, such as reimbursement, the decisions of HHS secretary nominee Kennedy and CMS administrator nominee Oz with respect to Medicare Advantage (MA), traditional Medicare, Medicaid and the Affordable Care Act plans will impact investor strategy in 2025 because many healthcare organizations underwent portfolio review or rationalization in 2024 due to challenges in reimbursement models, especially in MA. Additionally, uncertainty around the new Administration’s tariff and immigration policies could delay consolidation trends in some sectors in the short to medium term, and lastly, how the Administration addresses the pharmaceutical provisions in the Affordable Care Act will be keenly watched.
In conclusion, the combination of various favorable factors – the macro-economic environment, demand for healthcare innovation and transformative solutions, the availability of ample capital, and strong investor interest – all set the stage for a rebounding and thriving M&A market in 2025.
