Healthcare Services M&A Outlook 2024
January 17, 2024
2023 was a rather lackluster year for M&A healthcare services overall. While valuations in the broader market M&A declined slightly from 2022 to 2023, for the most part, healthcare valuations seemed to have held steady and even increased for hospice assets. But there still weren’t a lot of deals getting done. Many of the deals that were executed last year were large health systems combining in an effort to reduce costs through consolidation and insurance companies acquiring as part of their vertical integration strategies. Physician practice acquisitions were also popular as private equity groups and health systems expanded their holdings of medical groups. It seemed like there was a shortage of healthcare service companies on the market overall.
For the deals we brought to market, we had a record number of interested parties looking for acquisitions. It seems there is a lot of capital waiting on the sidelines and pent-up demand for the right assets. It felt like a seller’s market due to the extraordinary amount of interest we received for the opportunities we did bring to market. There is a large buyer pool for high quality companies.
I expect M&A for healthcare services will pick up some in 2024 but I don’t see it returning to the frothy deal landscape we saw just a few years ago when the government injected large amounts of capital into the system. Things seem to have leveled off now. Healthcare companies will always be in demand, especially since it is somewhat of a recession resistant business.
Regulatory and reimbursement changes have historically driven acquisitions and divestitures for healthcare services. Over the last 20 years, I have watched large health systems acquire ancillary services only to divest them years later. As the regulatory and reimbursement policy changes, so does a health system’s appetite for acquisitions and divestitures. Health systems are seeking acquisitions right now and are looking to add companies compatible with their service area and patient care strategy. Health systems want high-quality, reputable companies with strong financial performance who complement the market where they provide services and have compatible cultures.
2023 presented providers with many challenges including labor shortages and increasing costs. This trend is continuing in 2024 although seems to be leveling off somewhat. Companies are acquiring to increase their clinical and support staff and at the same time implement cost-saving measures. Having a strong team that will continue with the company after an acquisition is paramount to getting a favorable deal right now. Acquisition is the fastest way for companies to gain scale and employee head count and will continue to drive deal-making in 2024.
I expect to see more deals come together in 2024 than last year. However, buyers will have a low risk tolerance and will be more selective with their capital, preferring more high-quality assets. High quality assets have seasoned management teams, strong financial performance, use of innovative technologies, regulatory compliance, a stellar reputation, and compatible cultures and service areas.
If you think you might have interest in selling your company in the next few years, we would be happy to speak with you confidentially and offer frank and open advice to help you position your company to attract the best buyers while driving the highest value when the time is right.
Beth DaSilva is the President of Fleetridge Pacific and M&A Broker with over 20 years experience executing healthcare transactions.