Private equity deals in healthcare services fell nearly 24% during the second quarter, to the lowest point since 2020, according to PitchBook's latest Healthcare Services Report.
The report estimated 164 dealsoccurred in the quarter, up from 75 in the same period in 2020 but down substantially from a 362-deal peak in 2021's fourth quarter. The second quarter was the sixth-straight quarter for declining deal counts, the report found.
The slowed activity can be attributed to higher interest rates and more debt service costs, plus a surge in upcoming debt maturities due to less refinancing, said Rebecca Springer, lead healthcare analyst at PitchBook. She said the industry is seeing fewer large platform trades, or when one private equity firm sells a company to another.
Add-on deals also slowed down in the quarter, particularly among physician practice management groups that typically drive the majority of deal flow, Springer said.
Areas such as dental and vision care are seeing less interest, while the $26 billion medical spa industry is starting to garner more attention. Single-location medspas are entering the market at a faster rate than owners are retiring or the businesses are consolidating, creating opportunities, according to the report published late last week.
"Often these businesses are created by an entrepreneur. They're single-site, and there's a big roll-up opportunity there," Springer said. "Private equity loves a fragmentation story. It loves a growth story, and both of those are very much there [in medspa]."
Springer said the latest deal counts are in line with 2018 and 2019 numbers. Private equity had a red-hot year in 2021, but deals slowed in 2022. Several private equity-owned companies, including physician staffing company Envision Healthcare and cancer treatment provider GenesisCare, filed for Chapter 11 bankruptcy earlier this year.
Industry watchers, including Springer, say that despite recent setbacks, private equity interest in healthcare remains strong overall and will likely continue to invest in areas such as specialty care.
Springer pinpointed mental health and cardiology as two other specialty areas where interest is strong.
