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Deal advisers expect to see a surge in healthcare sector mergers and acquisitions in 2023, following a slowdown over the past year, according to reports.
Health system M&A dipped in the second half of 2022 as hospitals addressed urgent challenges, including staff shortages and rising costs for supplies and energy.
Those challenges coincided with general economic pressures as interest rates rose and health systems faced greater regulatory scrutiny from the Federal Trade Commission.
According to The Wall Street Journal, deal advisers are uncertain when M&A activity will pick up again.
“The M&A market is not going to stop. It just doesn’t work that way. What it does is it evolves,” Christopher Auld, head of leveraged finance at investment firm Stifel Financial Corp., told the WSJ.
The total value of M&A deals announced globally in 2022 fell 37% from 2021’s record high of $3.61 trillion, according to financial data company Refinitiv.
According to KPMG 2023 Healthcare Investment Outlook, most hospitals are struggling with higher costs, especially labor. As a result, they are operating on narrow or even negative margins.
“That’s likely to force even some of the largest systems to consider M&A, joint ventures, and non-traditional partnerships,” KPMG wrote.
While hospitals may look for strategic partnerships, experts expect private equity to continue to factor into healthcare M&A this year.
However, both buyers and sellers want more certainty about the pace of future rate increases from the Federal Reserve.
“As interest rates go up, valuations are coming down,” Suzanne Kumar, a vice president of Bain and Company’s M&A practice, told the WSJ. Ms. Kumar said that is particularly true for high-growth companies in the tech and healthcare sectors.
