The volume of publicly reported healthcare transactions (both announced and closed) remained steady during Q1 of 2024, matching the overall totals from Q4 of 2023 – with over 500 deals, averaging 168 per month.
Compared to Q4 of 2023, the following shows sector-by-sector quarterly trending entailing double digit percentage changes:
| Sector | Increase |
|---|---|
| Dental Practice Mgt | +100% |
| Hospital/Health Systems | +73% |
| Life Sciences/Pharma | +34% |
| Behavioral Health | +30% |
| Physician Practices | +20% |
| Decrease | |
|---|---|
| Ambulatory Surgery | -250% |
| Cannabis | -230% |
| Rehabilitation | -225% |
| Digital Health | -70% |
| Home Care & Hospice | -50% |
The top healthcare sectors for transaction volume in Q1of 2024 were as follows (including those with at least 20 deals):
| Life Sciences & Pharma: | 169 |
| Physician Practices: | 68 |
| Medical Device: | 57 |
| Digital Health: | 54 |
| Hospitals: | 26 |
| Dental Practice Mgt. | 22 |
In the first quarter, the Life Sciences and Pharmaceutical and Medical Device sectors (ranked #1 and #3 by overall deal volume) continued to dominate transactions in the healthcare industry, mainly due to the substantial innovation happening in these sectors. The data shows a range of interested acquirors, including both large and small life sciences organizations, as well as investor groups. This is aligned with KPMG’s 2024 Healthcare and Life Sciences Investment Outlook from January which expected, among other things, continuing appetite for innovative cell-and-gene therapies and treatments for cancer and rare diseases, as well as the desire to invest in innovative medical devices.
The Physician Practices sector has risen to the #2 spot in overall volume this past quarter. With many large national healthcare companies employing hundreds of thousands of physicians (Optum is now over 100,000 itself), and hospitals continuing to employ physicians in every specialty, the hundreds of private equity backed physician specialty platforms are seeing significant future opportunities and therefore are continuing to grow via acquisitions. Thus, we expect this activity will grow even faster throughout the remainder of the year and beyond, which growth will be further accelerated when interest rates ratchet down.
A vast majority of these platforms have been relatively quiet in the space during 2023, but are expected to deploy substantial capital in 2024 due to their investment thesis and structure. Physician platforms (and their sponsors) continue to be judged based on their success in growth of number of physicians, locations and ancillary services – and of course profitability – and in turn, their ability to exit in around 4-7 years with a targeted 3-5 times return on their investment. In this regard, there also has been an uptick in discussions surrounding several established physician platforms expecting to go to market for exits in the second half of 2024.
Although Digital Health is a broad category, it also continues to see a comparatively large volume of transactions, with many smaller or mid-size innovators being acquired. Given the fragmentation of parts of the health IT industry, this level of consolidation is not unexpected. A key theme throughout the healthcare industry is the desire for emerging technologies such as Generative AI to move beyond the pilot stage and become business as usual, and the growing consolidation activity may help to achieve the additional scale needed to create broader opportunities including enterprise EHR and platform enablement. We also expect to see health plans increasingly leveraging technology (including via digital health acquisitions) to consolidate administrative platforms, modernize business process, and advance prior authorization and customer engagement.
Consolidation within the Hospital & Health System sector continues, with several very high profile deals this quarter, including: (i) completion of the merger between BJC and Saint Luke’s across Missouri, Kansas and Illinois; (ii) the announcement of the Northwell/Nuvance merger in the Northeast; and (iii) the announced sale of Geisinger’s hospitals (described below). We continue to expect a new wave of “mega-health system” consolidation in the sector over the coming years, especially combinations of systems in different geographic regions due to the size of many existing health systems, and limitations as a result of antitrust laws.
With regard to healthcare deals last month (March 2024) -- some notable insights with respect to particular sectors are as follows:
- Physician Transactions
Nearly half of the 16 physician transactions involved primary care practices, including four somewhat larger transactions -- one involving 11 practices, another involving Steward Health’s physician network covering multiple states, and two involving sizable IPA type entities.
Overall, there was lower month-over-month transaction activity in this sector during March, which could have been due in part to the recent cybersecurity attacks on Change Healthcare, which affected revenue reporting for many physician practices. We do not, however, expect this to have a lasting impact, and for the reasons stated in the quarterly commentary above, activity in the physician practice sector should increase throughout the remainder of 2024. - Hospitals
Although there were only seven hospital transactions reported last month, because three of them included multiple hospitals, a total of 21 hospitals were involved. The three multiple hospital deals were:- Risant Health agreeing to purchase Geisinger’s 10 hospitals and 110 non-hospital clinical sites, in a member-substitution with a $2 billion capital commitment.
- MyMichigan Health acquiring three hospitals from Ascension.
- UCI Health purchasing four hospitals from Tenet.
- Dental Practice Management
This sector picked up quite a bit, with deals still involving smaller dental practices around the country, including general dentistry, periodontic, and endodontic practices. This robust activity demonstrates the continued fragmentation of dental practices, as well as the desire of the dozens of established dental practice management platforms to continue to grow and expand. - Home Care & Hospice
Although this sector only had three deals last month, two of them were quite large:- Vitas (a subsidiary of ChenMed) acquired the hospice operations of Covenant Health and Community Services, with operations throughout Florida and Alabama. This addition will further enable ChenMed – which operates in 15 states, with 100 locations and over 350 clinicians -- to provide quality, cost-effective clinical treatment across the continuum of care to needy patients in underserved areas.
- Private equity fund Waud Capital Partners acquired Senior Helpers, a home care company with 380 locations throughout 44 states.
We will continue to provide lists of reported and announced transactions in the healthcare industry on a monthly basis through Modern Healthcare. Please be on the lookout for our Q2 “Healthcare Trends and Insights” piece coming out in July.
