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).
Life Sciences & Pharmaceutical
Like every other quarter of 2024, Life Science & Pharmaceutical remained by far the largest sub-sector in terms of deal volume. This activity reflects continued innovation, particularly with respect to companies involved in developing cell and gene therapies, cancer, and rare diseases, which are expected to continue to be very active in 2025 for investments and acquisitions. Further, the KPMG 2025 Healthcare & Life Sciences Investment Outlook identified autoimmune, neurology and oncology drugs as focus areas continuing to experiencing broad and growing interest.
Medical Device
Transactional activity in Medical Device and Supplies sprung to the second most active sub-sector in 2024, up from third in 2023. There remains sustained interest among investors in new device technologies geared toward care in the outpatient care setting, addressing orthopedic, neurological, cardiac, and vascular conditions, and also enhancing cutting-edge diagnostic imaging and other testing capabilities, including for chronic conditions. Looking ahead to 2025, companies and investors will most likely seek strategic acquisitions to access advanced technologies within the Medical Device and Supplies sub-sector such as AI, robotics, and minimally invasive devices.
Digital Health
The Digital Health sector had the third highest deal volume for the 2024 calendar year as advances in technology (such as generative AI) continue to create opportunities to deliver care more efficiently and/or with an improved customer experience. Deal activity in this space is expected to continue to grow throughout 2025 and beyond, as the continued increasing demand for telemedicine solutions, remote patient monitoring, and virtual care services likely will lead to acquisitions aimed at expanding capabilities in these areas. Companies will look to acquire platforms that integrate with existing health systems and support long-term care management and other efficiencies.
Physician Services
Consolidation in the Physician Services sector continues on an upward trend, although many physician practice acquisitions this year have been smaller “add-on” transactions, as those driven by private equity investors, who sought less expensive options amid market uncertainty. However, we believe that the December Federal Reserve rate cut coupled with the substantial “dry powder” held in reserve by private equity firms last year will lead to continued viability for investment in this sector. As the landscape currently sits, there are hundreds of private equity platforms in a multitude of physician specialties looking to grow and eventually exit.
Within the Physician Services category, we are seeing that the most consolidation activity last year (and looking forward into 2025) occurring in orthopedics and cardiology. Additionally, there has been growing interest in medspas and plastic surgery practices (which are very fragmented), and continued interest in primary care, urology, eyecare, and fertility practices, all of which we expect will also be active in 2025.
Hospitals
Hospitals and healthcare systems saw relatively low volumes of deals in 2024 in absolute terms, however, a growing number of these deals involve the consolidation of small and medium sized hospital systems into larger, mega-systems. We expect continued, targeted deal activity in this sector, especially due to what Fitch (Nov 2024) has referred to as a “credit split” as Medicaid and Medicare changes and ongoing consolidation, have intensified a long-term trend of credit divergence, splitting hospital systems into stronger and weaker players.
We therefore expect stronger health systems will continue to make acquisitions for growth with a focus on new “outward” geographies, contiguous or beyond, to avoid enforcement actions of federal antitrust agencies. Even though antitrust enforcement is expected to loosen up under the new Administration, it still is unlikely to see large health systems in the same markets coming together.
Other notable sectors
Other “notable mentions” are sectors that for many years have been consistent targets of consolidation, including Home Health and Hospice, Behavioral Health, and Diagnostics (lab/imaging). Moreover, we expect growing consolidation activity in 2025 in the Specialty Pharmacy sector (also very fragmented), as large players and private equity investors continue to acquire smaller, independently owned companies in this space. Further, we are starting to see growth in acquisitions with non-provider companies that service the healthcare industry, including revenue cycle management firms and healthcare consulting and healthcare valuation firms.
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.
For more, check out Modern Healthcare's Mergers & Acquisitions database.
Contributing authors
Epstein Becker & Green PC
- Gary Herschman, [email protected]
- Anjana Patel, [email protected]
- Tim McHale, [email protected]
KPMG
- Dan Lawrence, [email protected]
Ziegler
- Andrew Colbert, [email protected]
- K. Pranav Nemani, [email protected]
